NVIDIA Unveils New Data Center Chip, Triples Cryptocurrency Revenue Forecast

Graphics chip giant NVIDIA Corporation (NASDAQ: NVDA) kicked off its annual GPU Technology Conference (GTC) this week with a splashy announcement: The company unveiled a brand new CPU designed for artificial intelligence (AI) and high-performance computing (HPC) that will target the data center market. 

NVIDIA also hosted an investor day on Monday, laying out the business for shareholders while raising its forecasts for cryptocurrency-related revenue.

Chasing the Data Center Market

While NVIDIA has historically specialized in GPUs and has a mixed track record in creating CPUs, the company claims that its new Grace chip will deliver 10x the performance of current data center processors in AI and HPC workloads. The world now produces a copious amount of data related to those types of applications, and those volumes are expected to skyrocket exponentially in the years ahead.

The data center CPU market is currently dominated by Intel (NASDAQ: INTC) and Advanced Micro Devices (NYSE: AMD). NVIDIA’s new chip is built on Arm architecture, while NVIDIA is currently attempting to acquire Arm for $40 billion. Arm is the British chip designer that licenses its architecture to other chipmakers, and Arm technology powers nearly all mobile devices in the world. In contrast, Intel and AMD use traditional x86 chip architecture in their respective data center chips.

The data center market, driven by the rise of cloud computing, has become increasingly important for NVIDIA’s business. Data center revenue skyrocketed by 124% last fiscal year to $6.7 billion, which represented 40% of total sales. That operating segment is NVIDIA’s fastest-growing business and could eclipse the core gaming segment if current growth rates sustain.

Revenue Is On Track To Top Outlook

At NVIDIA’s investors day, the company disclosed that revenue in the first quarter of fiscal year 2022 (the current quarter) was already trending above expectations. NVIDIA’s guidance had called for approximately $5.3 billion in sales but the company is enjoying “broad-based strength” across all market platforms, according to CFO Colette Kress.

The finance chief added that NVIDIA expects another “strong year” for its data center business thanks to the rising adoption of AI to power a variety of products and services. Demand continues to outstrip supply, and NVIDIA expects to remain supply constrained for most of 2021. The global chip shortage has impacted many sectors and it will take time for the foundry industry to expand production capacity.

Additionally, NVIDIA recently launched a new line of GPUs dedicated to industrial-scale cryptocurrency mining, known as CMP products. The company’s initial outlook included a forecast of $50 million in CMP product revenue, but NVIDIA now expects CMP sales to hit $150 million this quarter.

Other than the updated CMP outlook, NVIDIA did not provide any additional details around the rest of its guidance. Underscoring the significance of the data center market, NVIDIA also noted that the mix shift to that sector has been the largest driver of gross margin expansion over the past several years.

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Evan Niu, CFA has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends NVIDIA. The Motley Fool recommends Intel and recommends the following options: long January 2023 $57.50 calls on Intel and short January 2023 $57.50 puts on Intel. Millennial Money is part of The Motley Fool network. Millennial Money has a disclosure policy.

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