BFM 721 B

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Nvidia Research
Anand Srinivasan Marina Girgis
Former BI Analyst Former BI Analyst
1. Nvidia's Growth Dulled by Virus; Cloud Helps: Company Outlook
(Bloomberg Intelligence) -- THESIS: Table of Contents

Nvidia's gaming and data-center Key Topics Financial Review
GPUs -- 79% of sales -- are likely to Cloud-Aided Chips Fare Better Amid Covid-19 Earnings
see fiscal 2021 sales growth diluted Data Center Growth Financial Trends
by the effects of the coronavirus. Long-Term View vs Near-Term
RTX Skew Drives Growth
The company's initial estimate of a
Nvidia For Mellanox
$100 million impact on sales from
the outbreak may rise even as its Data Center unit is positioned to benefit from AI-driven cloud
GPU buying despite AMD and Intel's competition in AI inference. Turing-based chips help GPU sales
for gaming PCs, but growth could be crimped. Auto chips are likely to be notably weaker, but
GeForce Now cloud gaming may improve. The acquisition of Mellanox will aid its longer-term
strategy. (04/27/20)
Key Topics
Cloud-Aided Chips Fare Better Amid Covid-19
Cloud-Aided AMD, Nvidia, Intel Fare Better Than Auto Chipmakers
Even as 2020 consensus will likely come down, the effects on chipmakers may be uneven. Cloud
exposure could help Intel, AMD and Nvidia blunt corporate IT and consumer PC weakness, if
Amazon.com, Google and Microsoft continue binge buying. Auto and industrial slack may add pain
amid a slower recovery, hurting NXP and Texas Instruments. (03/13/20)
2. Intel Caution, Low Expectations May Insulate
Intel's conservative guidance and high exposure to the public cloud give it room to post a healthy
2020, in our view. With notable changes to our scenario, we end up in-line with consensus'
revenue. The sensitivity to PC shipments in 2020, and share losses in the data center to AMD and
Nvidia, will likely pressure revenue and EPS.
In a more optimistic, shorter-lived coronavirus scenario, however, cloud spending may get crimped
in 1H and rebound in 2H, counter to Intel’s view when it provided 1Q and full-year guidance. Lower-
than-consensus EPS would need sharp cuts to gross margin -- which our scenario incorporates.
(03/13/20)
Intel: Estimate Revisions, Forward P/E, Consensus
Source: Bloomberg Intelligence
3. AMD’s Goals, Multiple Need to Overcome Virus
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Contributing Analysts Lee A Klaskow (Transportation)
AMD's growth is likely to be pinched by corporate IT server and PC segments. The cloud business,
which is about 50% of the global data-center market, helps offset the 35% in corporate IT and 15%
in high-performance computing. AMD's product strength and ability to deliver likely remain strong
in core PC and cloud markets, but it faces the same logistics issues as peers.
AMD’s chip die -- or TSMC’s output -- still needs to be delivered to Quanta and Compal, which must
source other parts to assemble a server or PC for shipment to a data center in the U.S. Typical IT
hardware shipment time from China to the U.S. is 30-45 days, so February deliveries are driven by
January server production, which includes the Lunar New Year. Imports at the port of Los Angeles
fell 35% in February. Assembly volume in February may be much weaker. (03/13/20)
AMD: Estimate Revisions, Forward P/E, Consensus
4. Data-Center Binge Key to Nvidia Sales, Margin
While game-play time and in-game purchases may climb globally amid virus-related school and
office closures and the resulting added screen time, new gaming PC and GPU card purchases will
likely fall in 1H. New features, such as ray tracing, and wider adoption of its newer Turing-based
GPUs help Nvidia's pricing, but this may be a 2H phenomenon. Data-center growth, driven by
artificial intelligence applications and the cloud-buying binge, remains the determinant of sales
stability.
Gaming sales could expand by 12%, but data-center would need to grow more than 48% to notably
move both sales and EPS. The impending close of the Mellanox deal also pressures operating
margin if China’s State Administration for Market Regulation enforces a hold-separate remedy for
the two entities for several years. (03/13/20)
Nvidia: Estimate Revisions, Forward P/E, Consensus
5. Cloud Servers May Help Micron Manage
Micron may benefit from underlying demand trends in the server market for DRAM and NAND, as
growth continues in the hyperscale market powered by Amazon, Microsoft and Google. This
category will outweigh the weaker corporate IT and handset markets. This trend may be
inconsistent in 2020 amid supply constraints in 1Q or 2Q, choppier demand and atypical
seasonality due to Covid-19. Micron's margin should improve even if its market share across
segments doesn't rise proportionately.
Should corporate IT servers, PCs and mobile phones experience severe weakness in 1H with less
recovery in 2H, hyperscale spending alone may not be able to lead the memory industry into
supply-demand balance. This would push the market again into oversupply and push out a
balanced scenario until 2021. (03/16/20)
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Micron: Estimate Revisions, Forward P/E, Consensus
Data Center Growth
Nvidia’s Software Platforms Key to Expanding Diverse GPU Uses
Nvidia has benefited from its graphics processing unit (GPU) core competence, but more
impressive may be its development of the platform surrounding the chips, which has hastened
GPU-based app development and been a key driver of growth. GPUs' parallel-processing strengths
and higher performance have made them suitable for many uses. (11/18/19)
6. GPU Growth vs. CPUs Driven More by Prices Than Units
GPUs for servers have been characterized by low unit shipments and high average selling prices,
until ASPs began to moderate in 2018, according to IDC. The market is evolving and may see more
competition in the next few years, even as these chips monopolize specific workloads such as AI
training. General-purpose GPUs were dominated by Nvidia's server offerings, but the market may
be fragmenting, and competition between providers in historically separate segments may
increase. GPU engines that offload workloads from CPUs -- predominantly used for AI training --
have been run by high-end Nvidia Tesla-based chips, while Nvidia's GRID-based platform has been
used for GPU sharing, which aids in desktop visualization. (11/18/19)
Server GPU Revenue, Units
Source: IDC
7. Nvidia GPUs May Still Dominate in Near Term
Nvidia will likely sustain its dominance in AI, even as cloud and high-performance computing
providers continue to fit optimal chips on AI systems. As AI becomes integrated across a wider set
of systems -- from core servers to edge-based computing -- optimal solutions for more diverse
workloads will increase its needs. Cost, power and thermal settings will start to influence decisions
as AI systems' unit shipments grow. Custom solutions may continue to rise, particularly those
developed in conjunction with a merchant chipmaker, such as the Google TPU solution with
Broadcom.
ASICs and FPGA chips are still small elements of the AI market. GPUs for AI in servers were a $2.2
billion market in 2018, compared with $200 million for FPGAs and $220 million for ASICs and ASSP
chips, according to IDC. (11/18/19)
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Data-Center Processing Forecast
Source: IDC
8. AMD Likely to Target Specific Areas vs. Intel
Advanced Micro Devices will probably target specific segments for share gains, choosing not to
compete broadly vs. Intel and Nvidia. AMD still has substantially fewer server products on its EPYC
platform vs. Intel's wider Skylake SP. Intel's breadth allows it to pose specific solutions for a variety
of corporate IT and public-cloud workloads. AMD may target fewer workloads and offer different
performance and price levels, but with wider gaps than Intel. This may compel corporate IT system
makers and ODM providers that make servers for Microsoft Azure and Amazon.com clouds to
switch some of their workloads to AMD-based systems. AMD is using a similar GPU strategy vs.
Nvidia.
Intel’s chips are also being aimed at storage and networking functions in addition to traditional
data-center servers, where it competes with Broadcom. (11/18/19)
FPGA, ASIC, ASSP Forecast
Source: IDC
9. GPU Strength Drives Share; Applicability Widens Market
Even as the breadth of applications that can be enhanced by general-purpose GPUs (GP GPUs)
keeps widening, the core of Nvidia's development on the units remains unchanged. It's making
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chip cores more powerful and has eased bottlenecks in memory and connectivity between cores as
it strives to make GPU-based systems more responsive. Nvidia has also recognized that system
and platform usability of the chips is critical, and thus has widened its programmer base, making it
easier to use the software platforms needed to program GP GPUs. This has been enhanced by GPU
software-code containers, which make the programs easier to use and adopt. (11/18/19)
Nvidia's GPU, Tegra Sales
10. Research Labs, Enterprise Widen GP GPU Use
The high-performance computing segment of Nvidia's data-center platform -- a key driver of its
high-end GPUs -- is enjoying wider adoption as universities and research labs use GPU-accelerated
computing systems to get faster results for more complex problems. Less-sophisticated enterprises
may prefer Nvidia's preassembled systems, such as the DGX-1 or DGX-2, or outsourced solutions,
including the Nvidia GPU cloud. These kinds of systems are also being enhanced with AI algorithms
for medical imaging and diagnostic applications.
The enterprise segment may be small, but it has solid growth potential. In medical instruments,
Nvidia is seeking to provide aftermarket imaging solutions using a GPU system called Clara for
legacy instruments without waiting for new EKG or ultrasonic instrument sales. (11/18/19)
Data Center Processing End Points
Source: IDC
11. AI Inference May Be Large, Lucrative GPU Market
Nvidia dominates the AI training market, but GPU use for the inference segment is still in its early
stages. Nvidia views AI inference as a complex, $10 billion market that needs programmability, low
latency, accuracy and throughput with high energy-efficiency and rates of learning. This problem is
likely to be acutely felt first by large, concentrated AI-development platforms such as Amazon.com,
Microsoft, Apple and Google. Nvidia showcases AI inference platforms using its GPUs and, when
combined with software-deployment toolkits such as Kubernetes, can speed up performance, scale
up quickly and self-heal systems upon disruption.
Nvidia’s strength in inferencing may be weaker than in the training market. CPUs from Intel, AMD
GPUs and Xilinx FPGAs are all vying for a piece of this market for downstream AI implementation.
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(11/18/19)
Inference & Machine Learning Opportunity
Source: NVIDIA Investor Day 2019
12. AI Apps Widen, Deepen Across Industries; Aid GPU Use Case
Diverse use of GP GPUs across varied industries illustrates the power of AI. While research labs are
using high-performance computing systems for solving science problems, Alibaba and Tencent are
using AI for recommendation engines. Financial-services companies are using it for credit scoring
and fraud detection, while cloud providers such as Microsoft may be using it to insert ads. Retailers
are starting to use AI across a variety of internal logistics and client-facing platforms. Enterprises in
health care, industrials and aeronautics are using AI in highly specialized applications. AI's deep
usage across industries will likely continue to widen. Computer vision and its extracted data may
be particularly useful. (11/18/19)
AI Mainstream Adoption Timeline
Source: Gartner
13. Nvidia’s Platform Is Key to Retaining Advantage
As strong as Nvidia's GPU growth has been, we believe the development of the platform that
surrounds the chips may be more noteworthy. Making the chips applicable to a wider variety of
computing problems has been the key driver of the platform's sales strength. The software engine,
its development kits, the libraries of code for standard functions and changing the programming
language to the simpler, more popular Python have all been instrumental in attracting an
increasingly diverse community to write code directly to a powerful GPU.
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New end-market development was out of Nvidia's control, but complex problems needed massive -
- yet cheap -- computing power, and GPUs were the answer. Nvidia popularized them, as Intel did
with CPUs in the cloud. (11/18/19)
Nvidia's Data-Center Platform
Source: NVIDIA Investor Day 2019
Long-Term View vs Near-Term
Nvidia’s Solid Long-Term View Conflicts With Volatile Near Term
Nvidia's view of large, long-term lucrative growth opportunities in gaming, data centers and autos
matches our thinking, but the critical question to investors is the magnitude and timing of the
growth. Estimates for fiscal 2021 sales, earnings and margins should remain volatile amid slower
uptake of new Turing-architecture chips in gaming and inconsistency in data center spending.
(11/21/19)
14. Investors May See Short-Term vs. Long-Term Dilemma
Nvidia's reiterated fiscal 2020 guidance reflects stability despite weaker macroeconomics, trade
issues and the past year of sales declines. Inventory may continue to fall in the next two quarters.
In the longer term, optimism about Turing also suggests the baseline sales for gaming to be about
$1.4 billion a quarter, but investors likely remain conflicted on the rate of growth of that figure in
the near term, based on potential weaker uptake of its RTX GPUs. (11/21/19)
BI Scenario Analysis
15. Must Divest Inventories to Return to Growth
Nvidia's GPU platform-driven approach, democratized by its CUDA software, is likely to extend
sales in the longer term. This has seen strong gaming-application adoption, but the strategy will
widen and expand to become a growth driver in data centers and autos. The increase in wide and
deep workloads in augmented and virtual reality, high-performance computing, artificial
intelligence and machine learning make a strong case to use GPUs or accelerated computing.
We are believers in Nvidia’s longer-term strength, but it needs to bridge the gap between its
presently high inventories and normalizing gaming growth. Turing and Ray Tracing are key
innovations for gaming, yet growth will be slower than Pascal, but is likely to last longer. (11/21/19)
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redistribution.
Nvidia Gaming Growth, Inventory Level
Source: Bloomberg
16. Faster Turing Uptake Needed for Strong Segment Growth
Nvidia's publication of notable performance gains of its newer chips vs. older GPUs running
software-driven ray-tracing, and early Turing uptake rates, is aimed at blunting the pitch that some
buyers may prefer older, higher-end cards without ray tracing. We agree that ray tracing is a key
longer-term driver of content creation and consumption, but that this thesis is crisper in the short
term for higher-end cards, where it showed 45% sales expansion in the first eight weeks compared
with older Pascal-based products.
Mid- to low-end casual gamers who are price-sensitive remain the key to volume, sales and margin
for Nvidia’s fiscal 2020 and 2021, and uptake here may be slower than previous architectures.
(11/21/19)
Turing Uptake vs. Pascal
Source: Nvidia Investor Day 2019, Bloomberg Intelligence
17. Moore’s Law Slowdown Helps Nvidia GPUs, But Also FPGAs
A slowdown in Moore's law and the inefficiencies of CPUs for diverse workload use are key GPU
growth drivers that aid Nvidia sales, the data-center segment in particular. Should Intel be able to
re-accelerate growth in general-purpose CPUs that drive lower transistor size and expand transistor
density, this may slow adoption of other acceleration platforms. Expanding domain specificity,
coupled with scale -- such as in networking or general purpose AI for simpler applications -- may
drive cloud providers such as Google, Amazon.com, Apple and Microsoft to adopt in-house custom-
developed ASIC chips or FPGAs, which are used heavily in networking.
Intel’s integration of AI capabilities through its DL Boost technology, or its Xeon chips alongside
pure-play Nervana Neural Network processors, are offsets to this risk. (11/21/19)
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CPU, GPU, FPGA, ASIC Comparison
Source: Hackernoon
18. Ray Tracing a Key Longer-Term Gaming Driver
Ray tracing is a key feature that should propel long-term adoption, aiding sales for Nvidia's gaming
segment. Its new Turing architecture GPU also drives advanced performance relative to its previous
Pascal generation. Game and content-developer adoption should drive sales of high-performance
workstations, and when these games are available, should spur more RTX GPU chip and card sales.
The approach to host gaming-based platforms in the cloud through telecom operator partners such
as SoftBank in Japan and LG UPlus in South Korea may also drive wider RTX units. (11/21/19)
GeForce Now Opportunities
19. Gaming Laptops Likely to Remain a Growth Category
Gaming-laptop adoption may be another key driver to wider use. These are invigorating the laptop
market with their higher-than average prices and boosting sales for HP, Dell and Lenovo. Their
portability is a key to their popularity, and rising performance specifications -- coupled with
availability of the latest GPUs for this form factor -- may make this segment a growing category
longer term. While some laptops may cannibalize desktop sales, shipments here may also provide
incremental revenue for GPUs and laptop makers, particularly among high-end gamers. (11/21/19)
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redistribution.
Gaming Laptops Comparison
Source: PCMag.com
20. Data Center Replicating Gaming’s Platform Model
Nvidia's approach in data centers is similar to gaming: Develop an underlying platform of software,
tools, hardware and GPUs for workloads and systems where its approach is likely to deliver
dramatic performance improvement and reduction in total cost of ownership. The go-to-market
strategy of this platform is highly varied and different customers, from corporates to labs and
universities and cloud vendors, consume it differently. Some use only the GPU and certain
programming tools, while others use the entire stack. It's expanding from AI training to inference,
where video, speech and search are 75% of its uses.
Nvidia is combining its domain-specific expertise and tool kits in HPC, hyperscale and autonomous
vehicles to specific industries such as AI, medical imaging, search, video and image processing.
(11/21/19)
Inference Use Cases
Source: Nvidia Investor Day 2019
21. Nvidia-Mellanox Combo Aims to Improve Computing, Network Latency
The Nvidia-Mellanox combination aims to deliver products at the junction of computing and
networking to alleviate the throughput of a system that uses accelerated computing in the data
center and networking speed with other systems. Intra-data center traffic, along with data
movement between centers, is rising disproportionately faster than data exchanges between users
and data-center systems. For high-computing systems, especially those in the cloud, this solution
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may be ideal. Typically, most of Mellanox's sales might come from systems that aren't associated
with HPC. (11/21/19)
Data Center GPU Value
Source: Nvidia Investor Day 2019, The Next Platform
22. Auto Opportunity Is Likely Large Yet Nascent
Auto-chip sales for Nvidia are driven mostly by infotainment content, but here, too, the company is
pitching its platform content for the driverless car and widening its scope to include broader
electromechanical systems such as robots, trucks, heavy machinery and farming equipment. These
are nascent opportunities, and we believe that nonconsumer appliances -- especially those in
industrial may see faster adoption when presented with a higher value proposition and lower total
cost of ownership. (11/21/19)
Auto Growth Opportunities
Source: Nvidia Investor Day 2019
RTX Skew Drives Growth
Cheaper GeForce RTX Widens Nvidia's Gaming Appeal; Uptake Is Key
Nvidia's new, cheaper GeForce RTX series has broadened its graphics processing units across
mainstream price points and, along with more games using ray-tracing technology, will determine
the success of its Turing-based GPU platform. RTX uptake may start slowly, so sales growth in the
Turing gaming unit will be smaller but last longer. (11/14/19)
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23. Lower-End GTX Success Is Key Metric for Nvidia Gaming
While Nvidia's higher-end RTX20 series cards and chips will likely be sought by gamers interested
in speed and ray-tracing, the lower end of the Turing platform -- including the GTX16 series -- may
be a better indicator of the market for mainstream gamers who want performance and throughput,
but can't afford ray-tracing. GTX16 cards and chips carry similar or higher memory and perform
better than Pascal-based GTX cards and are at least $20-$30 more. The lowest-priced GTX1660 is
$219. The performance and power efficiency of these cards is better than for higher-end GPU cards
from Advanced Micro Devices, and AMD will likely cut prices or cede market share.
We still believe that, while Turing-based GPUs are structurally better than those based on Pascal,
sales growth may be lower than for the Pascal generation. (11/14/19)
Nvidia vs. AMD GPUs: Units, Prices
Source: IDC
24. Demand for New RTX Cards Drives Gaming Growth
Depth of demand for the cheaper options of RTX GPU cards will determine the growth rate of
Nvidia's gaming segment. Greater availability of games that take advantage of this unique
platform, as well as price and performance competitiveness against AMD, could return Nvidia's
gaming segment to its longer-term growth of about 10-20%. While Nvidia's cryptocurrency-related
demand is unlikely to return, the $1.2 billion, or 106 days inventory on hand at the end of fiscal 2Q,
remains elevated and likely requires price cuts to return to normal. (11/14/19)
Games With Ray-Tracing Technology
Source: Digital Trends
25. Gross Margin May Take a Few Quarters to Return to Highs
Price reductions on Nvidia's GeForce RTX cards and chips and on older platforms may spur
demand, but likely at a cost to gross margin. Older, Pascal-based chip inventory hasn't been
written down and sales will need to be gauged against those cost-basis levels to determine gross
margin. Wider adoption of the newer, Turing-based GPUs may compress profitability due to their
reduced prices. Gross margin, which peaked near 65% and is now about 60%, may be volatile in
the next few quarters amid inventory adjustment and newer pricing models. (11/14/19)
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redistribution.
Total PC Hardware Units, Average Selling Prices
Source: IDC
Nvidia For Mellanox
Nvidia's $6.9 Billion Mellanox Acquisition to Close in 2020

Contributing Analysts Woo Jin Ho (Technology)
Nvidia's $6.9 billion Mellanox deal will boost sales for semi-programmable network chips and may
be a long-term data-center asset. U.S. and Chinese regulators have approved the acquisition with
limited conditions and Nvidia's management expects it to close in 1H. Tech-architecture adjacency
and platform synergy between GPU computing and programmable networking are the key long-
term drivers. (04/16/20)
26. Nvidia Eyes Computing, Networking Convergence
Nvidia's strategic buy of Mellanox has no near-term revenue or cost synergies. The deal, likely
done on a shorter review period, was driven by Nvidia's vision of the convergence of GPU-based
computing power and programmable-networking functions from Mellanox. Nvidia's DGX systems
heavily use Mellanox networking cards in high-performance computing systems. Nvidia
management envisions a closer integration between programmable graphics processing units,
which could potentially offload some compute to the network processors. Nvidia expects its NVLink
architecture and software that help connect multiple GPUs to complement Mellanox's platform in
the long term.
The long-term synergy of product architecture, rather than financial metrics, is the key deal driver.
(10/02/19)
Nvidia, Mellanox Product Architectures
27. Nvidia's Mellanox M&A Goes Into New Territory

Nvidia's Mellanox buy would be its largest acquisition and a departure from its established M&A
pattern. Nvidia has focused exclusively on GPUs, even as their applicability has spread to broader
general processing in cloud data centers, high-performance computing and autos from what was
once just core graphics. Mellanox's revenue comes from chips and boards focused on ethernet and
InfiniBand networking technologies.
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Nvidia has little experience in these areas, and unlike Intel or Broadcom, hasn't purchased
companies in adjacent technologies to expand its market. The merger may deliver lower near-term
tech synergies and may distract from slowing core-gaming growth and weakness in Turing
architecture-driven upgrades. (10/02/19)
Nvidia's M&A Deals Typically Smaller, Fewer
28. Deal Likely Affects Intel, Broadcom, AMD

Contributing Analysts Matthew Martino
In the near term, Broadcom, Intel and Marvell's networking cards may use the Nvidia-Mellanox deal
-- and the distraction it creates -- as an opportunity to gain market share. In the longer term, the
envisioned convergence of compute and networking functions is likely a threat to broader data-
center platform companies such as Intel, Broadcom and AMD. Artificial-intelligence workloads may
be where convergence is most useful, especially in cases where system latency is critical. As the
scope and size of these workloads expand, an integrated compute-networking engine -- both at the
silicon and system levels -- may be advantageous. (10/02/19)
Mellanox, Nvidia Customers & Competitors
Source: Company Filings, SPLC
29. Mellanox Purchase Adds to Profit

Contributing Analysts Aitor Ortiz
Nvidia's potential Mellanox purchase would mark a departure from its established pattern of
smaller tech M&A, yet the latter's proximity to Nvidia's know-how in GPUs and its financial profile
would probably make a deal technically and financially accretive. Sales growth is likely, especially
in the near term, and Nvidia would gain from Mellanox's 800-bp advantage in gross margin. U.S.
regulators have approved the deal, but China will likely weigh in, too. The combination may also
help Nvidia expand its GPU development push in Israel.
Mellanox revenue falls below EU notification thresholds, but there's still a possibility that EU
nations or European Commission regulators will review the deal. (10/02/19)
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NVDA-MLNX Pro Forma Using Consensus
30. M&A Would Diversify Data-Center Business

Mellanox's leadership in high-speed network adapters could help expand Nvidia's presence beyond
server acceleration. Almost 60% of Mellanox's annual sales are ethernet-related, much of it coming
from high-speed network adapters that cater to hyperscale cloud networks. The Nvidia-Mellanox
marriage would push the combination beyond servers, expanding its addressable market to include
cloud networking. This would expose Nvidia to a market that was $1.6 billion in 2018 and is
expected to swell to $3.6 billion by 2022, according to IHS. Mellanox's incipient switching business
would boost its addressable market by $12 billion. (10/02/19)
Data Center Network Adapter Market
Source: IHS-Markit
31. Nvidia's $6.9 Billion Bid Could Be Show-Stopper

Nvidia's $6.9 billion bid for Mellanox may be high enough to silence rivals. Intel, Xilinx and
Microsoft were reported to have also been interested, yet the expanding valuation may have
become tough for them to rationalize. The bid implies $125 a share, a 20x forward P/E ratio and a
5.5x sales multiple, comparable with the valuations of Avago's Broadcom acquisition and Marvell's
Cavium deal. Intel paid a lofty 31x forward earnings for Altera, yet Mellanox may not yield
sufficient strategic benefits to justify a valuation that high, in our view. (10/02/19)
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redistribution.
Recent M&A Multiples, Large Chipmakers
Financial Review
Earnings
32. Nvidia's Data Center Resurgence May Continue: Earnings Outlook
Post-4Q Earnings Outlook: Cloud's AI spending on GPUs propelled Nvidia's Data Center segment to
43% sales growth in 4Q vs. a year ago, far outweighing the impact of weaker-than-Bloomberg
MODL consensus' gaming sales. These trends will likely remain at least through fiscal 1Q21 and
potentially 2Q. Depending on the sustainability of cloud spending, Data Center segment growth
may be faster than Gaming's in 2021. The coronavirus is estimated to impact 1Q sales by $100
million, with half in PC Gaming, but wider game availability should help newer chips drive
expansion. Higher margins were due to a stronger Data Center GPU mix.
Nvidia's fiscal 4Q sales of $3.1 billion and EPS of $1.89 beat consensus by 5% and 14%,
respectively, while gross margin was better by 90 bps. Fiscal 1Q21 sales guidance of $3 billion beat
estimates by 6%. (02/14/20)
Highlights From Recent Results:

Data Center Segment Sales Growth Likely to Continue
Coronavirus Crimps 1Q Sales, But Data Center Outweighs
Data Center Mix Drives Wider Gross Margins
Sales Revisions Likely to Turn Positive
Additional Resources:
Analyzer | BI »
Earnings Release | NSN »
Earnings Call Transcript | DOCV »
Company Presentation | DOCC »
Analyst Estimates and Models | MODL »
Financial Trends
33. Nvidia's Data Center Segment Boosted by Cloud, Gaming at Risk
Nvidia's Data Center sales may continue to propel growth as hyperscale buying proceeds over the
next one to three quarters. Short-term Gaming growth may be impacted by the coronavirus but
widening appeal in newer RTX chips should drive segment sales in the long term. Nvidia's 2021
sales growth depends on its Gaming and Data Center segments, which made up a respective 48%
and 31% of total sales in fiscal 4Q. While Gaming sales fell 10% sequentially in 4Q, Data Center
chip sales rose 33% due to stronger cloud buying. Gross margin increased 9 percentage points vs.
a year earlier amid a better product mix.
Nvidia's value-based pricing model creates significant margin leverage. Gross margin may improve
along with gaming-chip sales growth and cloud spending, driving EPS higher. (02/14/20)
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Segment Sales Growth, Margins (%)
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This document is being provided for the exclusive use of MARLENE PAWLITSCHKO at LONDON SCHOOL OF ECONOMICS & POLITIC.

1. Nvidia's Growth Dulled by Virus; Cloud Helps: Company Outlook

(Bloomberg Intelligence) -- THESIS: Table of Contents

Cloud-Aided Chips Fare Better Amid Covid-19

Cloud-Aided AMD, Nvidia, Intel Fare Better Than Auto Chipmakers

2. Intel Caution, Low Expectations May Insulate

Intel: Estimate Revisions, Forward P/E, Consensus

Source: Bloomberg Intelligence

3. AMD’s Goals, Multiple Need to Overcome Virus

Contributing Analysts Lee A Klaskow (Transportation)

AMD: Estimate Revisions, Forward P/E, Consensus

Source: Bloomberg Intelligence

4. Data-Center Binge Key to Nvidia Sales, Margin

Nvidia: Estimate Revisions, Forward P/E, Consensus

Source: Bloomberg Intelligence

5. Cloud Servers May Help Micron Manage

Micron: Estimate Revisions, Forward P/E, Consensus

Source: Bloomberg Intelligence

Data Center Growth

Nvidia’s Software Platforms Key to Expanding Diverse GPU Uses

6. GPU Growth vs. CPUs Driven More by Prices Than Units

Server GPU Revenue, Units

7. Nvidia GPUs May Still Dominate in Near Term

Data-Center Processing Forecast

8. AMD Likely to Target Specific Areas vs. Intel

FPGA, ASIC, ASSP Forecast

9. GPU Strength Drives Share; Applicability Widens Market

Nvidia's GPU, Tegra Sales

Source: Bloomberg Intelligence

10. Research Labs, Enterprise Widen GP GPU Use

Data Center Processing End Points

11. AI Inference May Be Large, Lucrative GPU Market

Inference & Machine Learning Opportunity

Source: NVIDIA Investor Day 2019

AI Mainstream Adoption Timeline

13. Nvidia’s Platform Is Key to Retaining Advantage

Nvidia's Data-Center Platform

Source: NVIDIA Investor Day 2019

Long-Term View vs Near-Term

Nvidia’s Solid Long-Term View Conflicts With Volatile Near Term

14. Investors May See Short-Term vs. Long-Term Dilemma

Source: Bloomberg Intelligence

15. Must Divest Inventories to Return to Growth

Nvidia Gaming Growth, Inventory Level

16. Faster Turing Uptake Needed for Strong Segment Growth

Turing Uptake vs. Pascal

Source: Nvidia Investor Day 2019, Bloomberg Intelligence

CPU, GPU, FPGA, ASIC Comparison

18. Ray Tracing a Key Longer-Term Gaming Driver

GeForce Now Opportunities

Source: Bloomberg Intelligence

19. Gaming Laptops Likely to Remain a Growth Category

Gaming Laptops Comparison

20. Data Center Replicating Gaming’s Platform Model

Inference Use Cases

Source: Nvidia Investor Day 2019

21. Nvidia-Mellanox Combo Aims to Improve Computing, Network Latency

Data Center GPU Value

Source: Nvidia Investor Day 2019, The Next Platform

22. Auto Opportunity Is Likely Large Yet Nascent

Auto Growth Opportunities

Source: Nvidia Investor Day 2019