Stock Market Analysis

How Does Nvidia Make Money?

A top stock for gamers, A.I. techies, and savvy investors; but after the company posted Q1 earnings, how exactly is Nvidia making money? 

Nvidia (NASDAQ: NVDA) just released Q1 earnings, showing that while it sold heaps of crypto mining chips during the quarter, its PC gaming segment remains its strongest business. To capitalize on the crypto trend, which has really taken off over the last year, Nvidia released processors built specifically for mining digital currencies in February, just as cryptocurrency prices were soaring. While you might think Nvidia is getting into the crypto business to make money, the reason behind the new product line might surprise you. 

Let’s look at earnings first though. 

Nvidia’s Q1 earnings 

The chipmaker posted: 

  • Revenue: $5.66 billion, up 84% from the same period last year. 
  • Adjusted Earnings: $3.03 per share, up 106% from the year-ago period. 
  • Gaming product sales: $2.76 billion, up 106% year-over-year (YoY) 
  • Graphics Card sales: $3.45 billion, up 81% YoY 

Why is Nvidia getting into crypto mining? 

The technology company said it booked $155 million in revenue from its cryptocurrency, or CMP, cards in the first quarter. In addition, Nvidia is expecting sales of $400 million from its CMP cards in the current quarter — which has impressed investors given that it’s a brand new product line for the company. 

However, Nvidia said on the call that the company is actually only getting involved in the crypto game to ensure gamers have sufficient supplies of graphics processing units (GPUs) as these chips can also be used for crypto mining. Therefore, Nvidia is making CMP chips for crypto mining, which can’t be used for gaming, in the hopes that more GPUs can be saved for gamers. Huang explained that as gaming is its core market, Nvidia can’t risk missing out because miners keep buying all the processor cards.

Despite strong sales, the company is still struggling with supply issues. Nvidia’s new GeForce RTX 30-series graphics cards retail anywhere between $399 and $1,499, but consumers sometimes pay double the list price to resellers because the products fly off the shelf when they are stocked. Huge demand for the cards resulted in Nvidia’s sales soaring 84% to $5.66 billion in Q1, far ahead of Wall Street’s expectations. 

Nvidia’s business model

As of the fourth quarter of 2020, Nvidia currently sits at the no. 3 spot in the GPU industry with 15% market share as it competes with Intel and AMD. The other product series which Nvidia produces is the Tegra system-on-chip processor. This chip is designed for smaller devices such as tablets and mobiles. The Tegra X1, for example, is used in the Nintendo Switch gaming device. 

Nvidia is all about innovation, it is a company that uses its passion to revolutionize technology. This is essentially how Nvidia works, through innovation and the development of processor chips that produce higher-quality graphics for gamers and designers alike. For this reason, its chips are also sought out as a solution to high volume information processing for data centers and cloud computing. 

How does Nvidia make money?

Normally, gaming is king for Nvidia. As we can see in the figures for Q1 above, its gaming business jumped 106% YoY in Q1. However, these figures were not far behind Nvidia’s computer and networking segment revenue, which includes chips for data centers. Nvidia’s data center sales alone also jumped 79% thanks to its acquisition of Mellanox last year which boosted demand for graphics processors in servers.

This growth outside of its gaming business is a great example of how the company is capturing other key revenue streams. 

What’s Next? 

Nvidia’s new, upgraded chips, which can accelerate AI processes, will likely continue to be used by data centers and PC manufacturers over the next few years, leading to more responsive, intelligent laptops, whilst speeding up cloud networks and data collection. Nvidia investors could see it become an essential company in the increasingly digitized world we live in.

Nvidia’s presence in AI is clearly being recognized, evidenced by its agreement with car manufacturer Mercedes-Benz last year. Investors flocked to Nvidia in the hopes it would start selling chips to self-driving car companies, and while that business hasn’t taken off yet, it still has a lot of potential. Nvidia said its automotive business was down 1% and generated only $154 million. 

This company is considered a top technology stock – already a number one choice for many in the PC market and gaming world, it is using its experience to carve out a dominant position in the ever-expanding AI sector. After posting impressive earnings for the first quarter, I expect many more investors to flock to the stock. 

MyWallSt operates a full disclosure policy. MyWallSt staff currently hold long positions in companies mentioned above. Read our full disclosure policy here.

Poppy Murray
Poppy is a contributing writer to MyWallSt. Poppy likes companies that go the extra mile. Her favorite stock is Amazon because she is fond of its innovation, variety, and creative solutions to sustainability.