NVIDIA (NVDA, Financial) has been a stellar performer over the last few years, and I think the stock is well positioned to continue moving higher heading into the earnings report. With Advanced Micro Devices (AMD, Financial) beating EPS and revenue estimates today, investors will be focusing on NVIDIA’s report next.
Irrespective of the earnings, I think NVIDIA’s long-term prospects look bright as the company has successfully diversified into several high-growth markets.
NVIDIA’s efforts in automotive segment
NVIDIA is creating its own collection of automotive technologies and using its multi-year experience with graphic processing units (GPUs) to gain a lead over its competitors. In point of fact, the company’s GPUs have been used by auto manufacturers to power infotainment systems for BMW, Tesla and many others.
However, now they are using some of its processors to operate complex artificial intelligence (AI) computers that offer driverless cars situational awareness. NVIDIA’s Drive PX platform accounts for the top AI car computing platform that permits automakers, as well as their tier 1 suppliers, to hasten production of automated and autonomous vehicles.
At present, this platform is being used by 80 automakers as well as Tier 1 automotive suppliers. Furthermore, the company prolonged its reach in the segment recently by introducing its new Xavier SoC, which operates more quickly, and is a smarter and more advanced processor for the Drive PX computer.
Though the company only generates approximately 8% of its overall revenue from its automotive business presently, the segment is growing at a rapid rate.
Data center business is growing as well
Apart from its GPU business, NVIDIA is also making progress in the data center space. In fiscal year 2016, the company’s data center business produced $339 million in revenue, whereas its overall top-line was $5.01 billion.
Although the number does not look that exciting, it is worth noting that the company’s data center business is growing at a healthy rate. In the period between fiscal years 2013 and 2016, the company’s data center business surged at a CAGR of approximately 40%, making it the second-fastest booming business in the reference time period.
Most significantly, the company has performed very well this year by outperforming its rivals, as data center growth rates in the starting two quarters of the prevailing fiscal year were 63% and 110%, respectively.
In the past, the company’s data center business was not sufficiently big enough to explain the development of an exclusively separate, highly complex chip specifically designed for data center computing applications. But, things have changed as this segment's products are tremendously profitable.
Furthermore, NVIDIA’s data center products convey substantially higher gross profit margins compared to its business average.
Final words
While I have no doubt that NVIDIA’s earnings report will be pleasing, I think investors should focus on the company’s long-term prospects. NVIDIA is gaining traction in several attractive segments, which is why I think the stock is poised to move higher over the years to come.
Disclosure: No position.
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