Chip giant squeaks through Wall Street expectations despite a 46% drop in gaming revenue

Graphics card giant Nvidia (NVDA) announced its Q4 earnings after the bell on Wednesday, beating analyst estimates at the top and bottom despite a 46% year-over-year decline in gaming revenue.

Better yet for Nvidia, the company says it expects revenue of $6.5 billion in Q1, while Wall Street estimates are $6.35 billion.

Shares of Nvidia rose more than 6% immediately after the report.

Here are key numbers from the report compared to what Wall Street expected the company to see, as compiled by Bloomberg.

  • Gain: $6.05 billion versus $6.02 billion expected

  • Custom WPA: $0.88 versus $0.81 expected

  • Data center revenue: $3.62 billion versus $3.87 billion expected

  • Gaming: $1.83 billion versus $1.6 billion expected

  • Professional visualization: $226 million versus $195 million expected

  • Auto and robotics: $294 million versus $267 million expected

“AI is at a turning point, preparing for widespread adoption in every industry,” Nvidia CEO Jensen Huang said in a statement. “From startups to large enterprises, we are seeing an accelerated interest in the versatility and capabilities of generative AI.

Wall Street believes Nvidia has another potential growth opportunity with the new explosion of interest in generative AI platforms such as OpenAI’s ChatGPT, Microsoft’s (MSFT) Bing, and Google’s (GOOG, GOOGL) Bard. Artificial intelligence platforms require massive amounts of processing power and Nvidia’s graphics cards are well suited for such applications.

Nvidia’s AI-powered data center operating revenue increased from $968 million in Q4 2019 to $3.62 billion in the last quarter.

Jensen Huang, CEO of Nvidia Corp, has one of the company’s new RTX 4090 chips for computer gaming in this undated September 20, 2022 handout photo. (Image: Nvidia)

But the chipmaker, like the rest of the gaming industry, has also suffered a drop in revenue from the same time last year, as gamers clamored for new hardware and software towards the end of the pandemic era. In the third quarter, the company’s revenue from its gaming business was down 51% year-over-year.

The pandemic caused gamers to look for graphics cards and computers with Nvidia hardware so they could play big titles like ‘Call of Duty’, ‘Fortnite’ and ‘Roblox’. Now that they have that hardware, they don’t need to upgrade, so Nvidia’s gaming revenue is skyrocketing.

“Gaming is recovering from the post-pandemic downturn, with gamers enthusiastically embracing the new Ada architecture GPUs with AI neural rendering,” said Huang.

However, take out the pandemic era and look at the company’s Q4 2020 earnings and gaming revenue was $1.5 billion. The year before? Only $954 million. In other words, the gaming segment is correcting for the unsustainable growth it saw during the pandemic.

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