Investors are increasingly worried that the surge in demand for semiconductors during the COVID-19 pandemic will fade, one of the signs of the industry's boom and bust. But NVIDIA Corp's growth in the first quarter of fiscal 2023 suggests that demand remains strong.

Mr Huang said on a conference call that despite the continuing impact of geopolitics and the supply chain crisis, "NVIDIA Corp's technical influence and market opportunities remain unchanged". The effectiveness of deep learning in achieving intelligent automation is promoting the adoption of NVIDIA Corp's products for artificial intelligence computing in various industries.

According to the results as of May 1, 2022, NVIDIA Corp's total revenue in the first quarter of the new fiscal year reached a record $8.29 billion, an increase of 46 per cent year-on-year and 8 per cent month-on-month.

Among them, the performance of the four major product lines: games, data centers, professional vision, cars and robots have their own advantages. There is no doubt that NVIDIA Corp has changed from a niche graphics card manufacturer to a chip manufacturing giant, and its GPU, DPU, CPU, software and systems are all in the market leading position.

At the same time, NVIDIA Corp's gross profit margin index is improving. The gross profit margin of this quarter is basically the same as the previous quarter, about 66%. "We have been able to offset rising costs and pressure on the supply chain," CFO Colette Kress said. Gross margin for the second quarter is expected to remain at current levels. "and," with the increase of new products and the increase of the proportion of software in revenue, we have the opportunity to increase gross profit margin for a long time in the future. "

In terms of financial data alone, NVIDIA Corp stands out among a number of depressed technology companies. On the other hand, its business performance also reflects new changes in the market: AI is being widely used in new scenarios of autopilot and digital twins.

When it comes to NVIDIA Corp in the past, people first think of Huang Renxun's Law, which tripled Moore's Law, the graphics cards of games and mining players, and Huang Renxun, who appeared as a 14-second virtual version of the concept of meta-universe.

However, financial and business data show that NVIDIA Corp's toughness is more comprehensive than expected, which makes it more resilient to external market uncertainties. If before and after 2016, it is GPU's parallel computing architecture that "happens" to meet the computing needs of deep learning in the era of artificial intelligence, making Yingwei the darling of the times. So, now, NVIDIA Corp for the layout of AI is omni-directional "step by step". In the world of accelerated computing and artificial intelligence, NVIDIA Corp has completed the comprehensive deployment of hardware, software, platform and application layer.

01、The data center surpasses the game again.

Let's start with two relatively mature lines of business: gaming and data centers, both of which are still doing well this quarter.

Revenue from the game product line climbed 31 per cent to $3.62 billion, while data center chip revenue rose 83 per cent year-on-year to $3.75 billion, contributing the largest share of revenue this quarter, according to the earnings report.

The game product line is divided into hardware and software. On the hardware side, the growth of the game business is still driven by NVIDIA Corp's "the best game graphics card '30' series in history." Since its launch in the fall of 2020, the GeForce RTX 30 series graphics cards have won a huge market, showing high-end real-time rendering images that have led to continued strong revenue growth for game laptops and game consoles. With the update of the NVIDIA RTX 30 series lineup this spring, more than 180 laptop models now use the RTX 30 series GPU and energy-efficient lightweight Max-Q technology, up from 140 in the same period last year.

Of course, NVIDIA Corp's game business is driven not only by gamers, but also by fast-growing content creators. CFO Kress estimates that the entire creator economy is a multimillion-tier market, with about 80 million individual creators and companies.

It is worth noting that the mining of the cryptocurrency industry for the game graphics card pull is declining. Although it is difficult to grasp accurate market share, as CFO Kress said, one side of the proof is:The slowdown in the growth rate of the ethernet hash rate, the number of hashes that can be performed per second, may reflect a decline in the use of GPU "mining" activities.

Recently, the plummeting price of graphics cards and the collapse of cryptocurrency also reflect the growing demand for graphics cards from mine owners. In addition, in March 2021, NVIDIA Corp specially developed a chip CMP (Cryptocurrency Mining Processor) for mining, and the demand for mining with game graphics cards has been separated.

It is worth mentioning that just last month, NVIDIA Corp was fined $5.5 million by the SEC for failing to report a significant revenue boost from cryptocurrency mining in the two quarters of fiscal 2018.

Let's take a look at the data center product line, which once again exceeded the revenue of the game product line in the first quarter. In addition to nearly doubling year-on-year growth, data center revenue grew by 15% month-on-month. Among them, revenue from super-large-scale and cloud computing customers more than doubled year-on-year.

This is still due to the need for AI training and reasoning for GPU (A100) and DGX systems under the Nvidia Ampere architecture. Almost all image processing or other algorithm processing can be completely accelerated on the A100. At the same time, cloud computing, very large customers for workloads such as natural language processing and deep recommendation, and vertical applications are leading the growth of data centers.

A trend behind the growth is that customers are increasingly combining NVIDIA Corp's computing products with network products to build "modern artificial intelligence factories", with data as raw material input and intelligence as output.

In fact, Lao Huang has repeatedly mentioned this vision over the years, and during the earnings call, he said that the visibility of data centers in this area is much better than ever before. Artificial intelligence and data-driven machine learning technology are used to write software and extract insights from the large amount of data owned by the company, which is undoubtedly strategic for the company. NVIDIA Corp's technology enables most companies to use their own data to extract insight, automate many of the predictions they have to make, and complete them quickly. This trend is sweeping almost every industry.

Lao Huang is also confident that the business of the data center will grow month-on-month in the next quarter, because the scenario of using the data center is very broad. He says data centers have expanded from cloud and super-scale to all industries, from AI training to reasoning, to the industrial deployment of artificial intelligence, which is needed in almost every industry.

In addition, the data show that since NVIDIA Corp deployed the three-core strategy (GPU, CPU, DPU cooperation) last year, the business growth of the data center began to accelerate.

02, relativeStable "professional vision" &The ready "cars and robots"

Following strong demand in the last quarter, the professional vision product line continued to maintain its momentum, with revenue of $622 million in the first quarter, up 67 per cent from a year earlier, although it was down 3 per cent from a month earlier.

NVIDIA Corp's professional vision product line is mainly for enterprises, and its revenue growth benefits from the fact that many enterprises continue to promote telecommuting or mixed work, which requires the configuration of 3D design and artificial intelligence for employees; accordingly, employees use their own home PC as a "second workstation". However, the quarterly growth of the "mobile workstation" GPU was offset by a decline in desktop revenue, so there was no month-on-month increase.

In the long run, the growth of the professional vision product line still benefits from the NVIDIA RTX Ampere architecture product cycle, which is mainly used in digital content production (e.g. Sony Group Corp movie animation) and medical imaging (e.g. Medtronic PLC). It is worth noting that in the first quarter, NVIDIA Corp also released a new Ampere architecture RTX GPU for workstations, which allows more people to use AI and RayTracing technology. However, this series of updates will not be reflected in revenue until after mass production.

In the professional visual product line, as the most out-of-circle product of Lao Huang's "endorsement", NVIDIA Corp's Omniverse is not as grandiose as one-dimensional concept products, but really out of the path of industrial production: digital twins. By "copying and pasting" the real world in the virtual world, such digitization can help enterprises reduce costs and increase efficiency.

The revenue of this enterprise-oriented Omniverse Enterprise is also recorded in the professional visual product line. At present, Omniverse enterprise software is being adopted by large companies in many industries. Amazon.Com Inc, for example, is using Omniverse Enterprise to build AI-enabled digital twins for his warehouse to optimize warehousing design and train smarter robot solutions.

And the development of software like this can play a role in expanding the market for NVIDIA Corp. As Lao Huang famously said, "Chips are enablers but chips don't create markets. Softwares create markets. "as the Omniverse ecosystem is used by more people, third-party developers in robotics, industrial automation, 3D design and rendering have developed connections to Omniverse, which drives GPU sales and drives more high-end and diverse GPU configurations.

In order to further lower the threshold for the use of Omniverse and expand the use of ecology, NVIDIA Corp also announced the launch of Omniverse Cloud services this quarter, giving millions of Mac and Chromebook users instant access to NVIDIA Omniverse to enable collaborative editing of large-scale 3D scenes anywhere. However, the service will be launched next year.

Finally, the most potential of the four major product lines is the automotive and robotic product line, which had revenue of $138 million in the first quarter, down 10 per cent from a year earlier. This is due to supply chain problems for carmakers and a decline in traditional cockpit revenue. But the business of smart cockpits is growing.

At present, although the auto and robotics business accounts for the smallest proportion of revenue, Lao Huang is full of confidence and regards this product line as NVIDIA Corp's next growth point. He said:"We are likely to have the lowest quarter of auto revenue," he said. "quite safely, self-driving chips (Drive Orin) and their solutions, robotics will be our next multibillion-dollar business. "Orin is also seen as one of the four pillars of NVIDIA Corp's strategy for robotics and the next wave of artificial intelligence.

Orin is a robot processor, which can be used in the manufacture of cars, robot taxis, trucks, delivery robots, logistics robots, agricultural robots and medical devices.

Its self-driving car system-level chip Drive Orin SoC is regarded as the "brain" of software-defined cars, providing 254 TOPS per second. With this scalable Drive Orin, automakers can customize their research and development on this basis, upgrading all the way from the L2 + system to the L5 fully self-driving car system.

Such a technical route and high computing power made NVIDIA Corp stand out, and a number of big customers of Mobileye, the previous autopilot chip leader, turned to NVIDIA Corp. Although NVIDIA Corp has only started mass production of the Orin this quarter, more than 35 automakers have chosen to use the computing platform, bringing a backlog of orders for NVIDIA Corp with more than $11 billion.

Among them, BYD, China's largest electric car maker, and Lucid, the new force of American carmaking, are the latest companies to announce the construction of next-generation models on Drive Orin. CFO Colette Kress said on the earnings call that Orin has begun a major product cycle and that car customers will continue to increase in the second quarter.

03. BetThe future

As for NVIDIA Corp's performance at the beginning of the new fiscal year, the media commented that it was "lukewarm".

NVIDIA Corp also lowered his revenue forecast for the second quarter of fiscal 2023 due to the "unpredictable" external environment. It also said that this expectation takes into account the loss of about US $500 million caused by the conflict between Russia and Ukraine and the blockade of the epidemic in China. Of these, China and Russia affected about $400 million in gaming business, and data center business that stopped selling to the Russian market accounted for about $100 million.

In response, Tim Arcuri, an analyst at UBS, asked whether the $500m impact was caused by demand or supply. If, as CFO Kress put it, "the game market is slowing", it sounds more like NVIDIA Corp's business is affected by demand, which seems to be in line with NVIDIA Corp's strategy of slowing down new employee recruitment. In other words, if the loss is affected by supply, then the market recession is only temporary; but if it is affected by demand, the market "may never come back, which will be the beginning of an autumn." "

While it is unconvincing that CFO Kress ultimately blamed the problem on the supply side, there will be a new wave of demand in the game market with the launch of the RTX 40 series graphics cards in September. Lao Huang said that the previously announced high-performance Hopper architecture is expected to be available in the third quarter, products under the new architecture will also begin to climb in the second half of the year, and new GPU, CPU and DPU will all be launched in the second half of the year, while these new chips and systems may trigger a new round of upgrading demand in industries such as artificial intelligence, graphics, Omniverse, self-driving cars and robots. In the final analysis, whether there is demand or not, it is still the technical strength that decides.

For the future, NVIDIA Corp, who is rising at the speed of light in the first wave of artificial intelligence applications, believes that artificial intelligence systems based on edge computing will become the next major computing field, and the next wave of AI will be the digital twins blessed by artificial intelligence and the world of robots and autopilot. In this regard, as Lao Huang said, NVIDIA Corp is definitely on the way.

At present, whether it is the "Huang Renxun's Law" that accelerates Moore's Law, or the joint "three-core" hardware strategy, or the open ecological software strategy, and years of AI technology accumulation, all make NVIDIA Corp walk more steadily in the external environment intertwined with black swans and gray rhinos.