Chipmaker Nvidia's stock falls on data centre miss

(Reuters) - Nvidia Corp’s () sales in its closely watched data centre unit fell short of Wall Street expectations and the microchip maker disclosed a heavier-than-expected reliance on the volatile cryptocurrency mining market for revenue growth, pressuring shares despite overall revenue topping expectations.

The combination sent its shares down 2 percent to $254.90 in extended trading, despite revenue soaring 65.6 percent in the first quarter.

The U.S. chipmaker has diversified its revenue streams by turning to new growth areas such as data centres, artificial intelligence and self-driving cars, while also benefiting from robust sales in its biggest business of supplying graphics chips used in gaming.

The company also for the first time disclosed that it made $289 million in sales - about 9 percent of its overall $3.2 billion in revenue - from chips for mining cryptocurrencies, a fast-growing but volatile line of business. The figure was higher than the $200 million many analysts had expected, but Nvidia’s disclosure of the figures should help investors gauge its impact on the chipmaker’s finances, said Bernstein analyst Stacy Rasgon.

But Chief Financial Officer Colette Kress said that the company expects cryptocurrency-related revenue to be only about one-third of the fiscal first quarter’s level during the next quarter. Retail for Nvidia’s gaming chips surged earlier this year as miners snapped up chips, a development Nvidia addressed by releasing mining-specific chips.

“While supply was tight earlier in the quarter, the situation is now easing,” Kress told investors on a conference call. “As a result, we are pleased to see that channel prices for our GPUs are beginning to normalize, allowing gamers who had been priced out of the market last quarter to get their hands on the new GeForce GTX at a reasonable price.”

Revenue from Nvidia’s data centre business, which powers cloud-based services such as Amazon.com’s () Amazon Web Services, Microsoft Corp’s () Azure as well as Alphabet Inc’s () Google Cloud, rose 71 percent to $701 million, but missed analysts’ estimate of $703 million, according to Thomson Reuters I/B/E/S.

“I think it’s (Nvidia’s share price) down because the revenue beat was mainly from cryptocurrency-related revenue,” said Kevin Cassidy from Stifel. He said Nvidia’s earnings were mostly in line with expectations, “which may not be good enough for shares trading at 40x forward earnings.”

Revenue from Nvidia’s best-known business of gaming chips, also used by cryptocurrency miners, rose 68 percent to $1.72 billion, beating analysts’ average estimate of $1.65 billion.

A cryptocurrency boom has powered growth at Nvidia and rival Advanced Micro Devices Inc () as their graphics chips provide the high computing ability needed to mine popular virtual currencies such as bitcoin BTC=BTSP and ethereum, but the sector is battling volatility caused by swings in the currency's value.

Revenue from Nvidia’s automotive business, which includes its Drive platform used in self-driving cars, rose 4 percent to $145 million, also topping analysts’ estimate of $132 million.

Nvidia in March suspended self-driving tests across the globe, a week after an Uber Technologies Inc [UBER.UL] autonomous vehicle struck and killed a 49-year-old woman crossing a street in Arizona.

The company’s net income rose to $1.24 billion, or $1.98 per share, in the first quarter ended April 29, from $507 million, or 79 cents per share, a year earlier.

Total revenue rose to $3.21 billion from $1.94 billion.

Excluding items, Nvidia earned $2.05 per share.

Analysts on average had expected revenue of $2.91 billion, according to Thomson Reuters I/B/E/S.