Nvidia rides tech's A.I., gaming, machine learning, cryptocurrency waves

Nvidia may be benefiting from what one analysts describes as a "tectonic shift" in computing and it shows: Every unit of the graphics processor's business is performing well.

The company's fiscal first quarter results were strong and handily topped Wall Street expectations. Nvidia has been riding a strong data center wave as companies upgrade their graphics processing units, or GPUs, for artificial intelligence and machine learning. The company's core gaming business is doing well due to a shortage of supply, higher prices and new releases such as Fortnite. And Nvidia is even benefiting from the trendiest of tech trends: cryptocurrency.  

Add it up and Nvidia's results and outlook for the second quarter even accounted for what is expected to be a decline in the cryptocurrency mining fad. Simply put, Nvidia is earning its spot among the tech elite that leads the stock market.  

Nvidia reported first quarter net income of $1.24 billion, or $1.98 a share, on revenue of $3.2 billion, up 66 percent from a year ago. Non-GAAP earnings for the first quarter were $2.05 a share. For the second quarter, Nvidia is projecting revenue to be $3.1 billion.  

So what's going on? Jefferies analyst Mark Lipacis says Nvidia is leading another wave of computing that will revolve around parallel processing applications needed for artificial intelligence and neural networking. Lipacis also argues that Nvidia's ecosystem-- a series of developer and education efforts revolving around A.I.--isn't fully appreciated yet.  

Here's a tour of where Nvidia is riding the wave:  

Data center at an annual revenue run rate of $2.8 billion. In the first quarter, Nvidia delivered data center revenue of $701 million, up 71 percent from a year ago. Nvidia announced its TensorRT 4, A.I .inference accelerator software for deep learning. Nvidia is also just at the beginning of an upgrade cycle for its Tesla V100 GPUs. Hyperscale cloud providers will be launching Nvidia's latest GPUs at scale in the quarters to come.  

On a conference call with analysts, Nvidia CEO Jensen Huang said:  

The largest inference opportunity for us is actually in the cloud and the data center. That's the first great opportunity. The reason for that is there's just an explosion in the number of different types of neural networks that are available. There are image recognition, there's video sequencing, there's video -- there's recommender systems. There's speech recognition, speech synthesis, natural language understanding. There's just so many different types of neural networks that are being created.  

Huang also compared the company's Volta processor with Google's TPU 3 (Tensor Processing Unit). Huang said that Volta is designed for deep learning applications, can be programmed and if flexible enough to be compatible with Nvidia's previous architecture.   

He added: "We're going to be very successful with Volta. Every cloud will have it. The initial deployment is for internal consumption. Volta has been shipping to the cloud service -- cloud providers, the Internet service companies, for the vast majority of last quarter, as you guys know. And they're using it internally. And now they're starting to open up Volta for external consumption, their cloud customers. And they are moving as fast as they can. And my expectation is that you're going to see a lot more coming online this quarter."  

Gaming. Nvidia's gaming revenue in the first quarter was up 68 percent from a year ago to $1.72 billion. Nvidia got its start by creating graphics processors that could deliver strong PC gaming experiences. Today Nvidia is benefiting from a few blockbuster games.   

Huang said: "The success of Fortnite and PUBG (PlayerUnknown's Battlegrounds) are just beyond, beyond comprehension, really. We saw the uptick and we saw the demand on our GPUs from all over the world. Surely, there was scarcity as you know. Crypto miners bought a lot of our GPUs during the quarter, and it drove prices up. And I think that a lot of the gamers weren't able to buy into the new GeForces as a result. And so we're starting to see the prices come down."  

Cryptocurrency. Nvidia saw $289 million in cryptocurrency demand in the first quarter, but also noted that it expects sales to be about a third of that sum in the second quarter.  

Professional visualization and automotive. Professional visualization is an enterprise market for designing products and developing content. Revenue was up 22 percent in the first quarter. Automotive revenue was up 4 percent to $145 million as Nvidia is becoming a player in autonomous driving. 

Bottom line: Nvidia is playing well in multiple hot technology categories and is likely to fare well for the foreseeable future. Competition from AMD is a wild card and in the data center Intel remains dominant.