Nvidia’s Cryptic Road Ahead
Chip maker’s record fiscal year creates high hopes for a repeat
Nvidia NVDA 6.69% may have only high-quality problems these days, but it still needs to solve them.
One problem the chip maker has is that it seems to be selling all the chips it can make. Nvidia’s graphics processors, also called GPUs, are in hot demand by everyone from giant tech companies building data centers to videogamers to cryptocurrency enthusiasts. The latter two in particular are competing for the type of GPU cards used in supercharged PCs, causing a shortage that began last summer but seemed to have worsened later in the year as the value of cryptocurrencies continued to soar.
That gave a boost to what was already a strong year for Nvidia. Revenue from the company’s gaming segment jumped 33% to a record $5.5 billion for the fiscal year ended Jan. 28. This included an unspecified contribution from crypto demand, as well as the chips the company sells to Nintendo that are used in its popular Switch console.
Nvidia is a “fabless” chip company that outsources the actual manufacturing of its chips to others. CEO Jensen Huang said on the company’s earnings call Thursday that it is working with its partners to “catch up to that demand.”
The recently ended fiscal year was the company’s best ever. Sales jumped 41% to a record $9.7 billion, while operating income surged 66% to $3.2 billion—another record. The company’s operating margin for the year was also at a record high 33%, compared with 28% the previous year. Data center sales, representing chips sold to companies such as Google, Amazon and Microsoft to establish artificial intelligence capabilities in their networks, more than doubled during the year.
That means Nvidia’s main “problem” for the year ahead is how to improve on perfection. Chances are that it can. Capital spending on data centers is expected to continue growing in the double-digit range this year. Gaming demand will remain strong as well, particularly with Nintendo boosting production of the Switch. Crypto is a wild card, with the value of those currencies swinging wildly of late, but Nvidia is wisely cautious about those customers, maintaining its focus on its gamer base and the burgeoning data center opportunity.
Still, the company has a lot to live up to. Its stock defied Friday’s turbulence to pick up 7% after already having surged nearly 90% in the previous 12 months. Nvidia’s market value is now ahead of that of IBM ’s , with the shares fetching 37 times forward earnings. High expectations can set up disappointments down the road. Still, there are worse problems to have.
Write to Dan Gallagher at dan.gallagher@wsj.com
Appeared in the February 12, 2018, print edition as 'Nvidia’s Good Problem to Have.'