NVIDIA Earnings and Guidance Remains Upbeat Despite Chip Shortage and Arm Ltd Acquisition Challenges

As much as FedEx and GM earnings, no investor should play down Nvidia’s and Intel financial reports. It has been a dire situation with microchip shortage lately as the world sees rapid digitalization of nearly all spheres of our lives beginning with payments and ending by autonomous vehicles’ dashboards.

The industry has been suffering from the microprocessor shortage, in part caused by the quarantines due to the pandemic. Supply restrictions will remain for most of next year, according to Nvidia.

The latest results from Nvidia Corp. (NVDA), the largest chipmaker in the U.S. by market capitalization, has exceeded Wall Street's estimates. The company presented an optimistic outlook, although it warned that persistent bottlenecks on the supply of chips will endure for longer than expected. The Santa Clara, California-based company said Wednesday, that revenue for the current quarter will be about $6.8 billion. According to Bloomberg, this compares to the average analyst estimate of $6.54 billion.

Nvidia reported Q2 sales reaching $6.51 billion, higher than the $6.33 billion forecast. Earnings were $1.04 per share excluding certain products, up from the $1.01 forecast. For the quarter, Nvidia reported earnings of $1.04 a share. Wall Street analysts had forecast the chipmaker to earn $1.02 a share. In late trading following the publication of the results, the stock rose 3.2% to $196.50. By the close of trading by Thursday market close, total YTD growth was close to 50%.

Sales of Nvidia's data center division over the past quarter were $2.37 billion, up 35% YoY as Gaming revenue jumped 85% to $3.06 billion. The so-called CMP chips, designed specifically for mining cryptocurrencies, brought in $266 million in the quarter, which, however, was below the company's forecasts.

Nvidia's 3D GPUs are a major component for video games, a market that is growing rapidly during the pandemic. But the market is starving for microchips as it can't get enough of them from third-party manufacturers. The company also warned that its bid to acquire Arm Ltd. will take longer than expected. For the period the company had introduced its GeForce RTX 3080 Ti and GeForce RTX 3070 Ti graphics cards, offering a jump of up to 50% in performance over its last generation. And RTX is featured in more than 130 games and applications.

"Demand will outpace supply for some time," CEO Jen-Hsun Huang said during a conference call with analysts. "The good news is that we have secured sufficient supply to meet our growth targets."

Jen-Hsun Huang, who founded Nvidia in 1993, has turned the chip maker into an industry giant by taking orders for his products outside of gaming computers. The company reported 55% average revenue growth over the past six quarters. Thanks to this, its market capitalization has reached almost half a trillion dollars.

Nvidia was one of the first to outsource the manufacturing process and never had a factory of its own. Chips for the company are manufactured by Taiwan Semiconductor Manufacturing Co. and Samsung Electronics Co., as well as its peers and competitors.

Further growth opportunities: the company expects growth in the current quarter to be driven primarily by its data center business. The increase in production of game chips will not be possible due to insufficient supplies, and sales of mining products will be "minimal", Nvidia said.

Meanwhile, Nvidia's keeps its plans to expand through a deal with Arm intact, despite their progress may be “hampered by some obstacles”. After Nvidia agreed to acquire Arm from Japanese company SoftBank Group Corp. last year, the deal faced opposition from regulators. Several other representatives from the chip industry have also raised concerns about the deal, but Nvidia said Wednesday that the deal is moving forward. The deal will give Nvidia access to chips used by some of the world's largest tech companies, including smartphones, factory equipment and automobiles.