How Nvidia Makes Money: GPU, Automotive, and AI Platforms

Nvidia Corp. (NVDA) popularized the graphics processing unit (GPU) and gets the vast majority of its revenue from these specialized chips. It’s rapidly expanding into fields such as artificial intelligence (AI). Nvidia designs and sells GPUs for gaming and professional applications, as well as chip systems for use in vehicles, mobile devices, and other tools. The company’s biggest competitors include Intel Corp. (INTC) and Advanced Micro Devices Inc. (AMD).

Key Takeaways

Nvidia popularized the use of graphics processing units, known as GPUs, a key component of PC architecture.
The Graphics segment is Nvidia’s largest revenue generator.
The company’s Compute & Networking segment is growing fast.
Nvidia is looking to expand its AI capacities, recently acquiring CPU maker Arm from SoftBank Group for $40 billion.

Nvidia’s Financials

Nvidia is growing again after negative trends in the global chip market led to falling revenue and profits during the company’s 2020 fiscal year (FY), which ended January 26, 2020. The company reported net income of $622 million in Q2 FY 2021, which ended July 26, 2020. Net income was up 12.7% compared to the same three-month period a year ago. Revenue grew 49.9% compared to the same quarter a year ago, reaching a record $3.9 billion.

Nvidia focuses on five key market platforms, which reported mixed results in Q2 FY 2021. Gaming posted a 26.0% year-over-year (YOY) rise in revenue. Data Center, which has recently surpassed Gaming as the biggest platform, grew 167.5% YOY. Professional Visualization and Automotive each posted respective revenue declines, while the OEM and Other platform posted a 31.5% rise.

Nvidia’s Business Segments

Nvidia reorganized how it reports its operating segments beginning in Q1 FY 2021. The company’s two main reportable segments are “Graphics” and “Compute & Networking”. Nvidia also includes an “All Other” category for expenses not included in the other two segments. Breakdowns for revenue and operating income are included for these segments. Previously, the company provided a breakdown of revenue for a “GPU” segment and a “Tegra Processor” segment.

Graphics

Nvidia’s Graphics segment includes the GeForce GPUs for gaming and PCs, the GeForce NOW game streaming service and related infrastructure, and solutions for gaming platforms. It also includes the Quadro GPUs for enterprise design, GRID software, and automotive platforms for infotainment systems.

In Q2 FY 2021, the Graphics segment generated $2.1 billion, or about 54%, of Nvidia’s total revenue. This was up 15.6% compared to the year-ago quarter. The segment’s operating income grew 28.9% to $911 million, comprising about 57% of the total.

Compute & Networking

The Compute & Networking segment includes Nvidia’s Data Center platforms as well as systems for AI, high performance computing, and accelerated computing. It also includes Mellanox networking and interconnected solutions, DRIVE for autonomous vehicles, and Jetson for robotics and other embedded platforms.

The Compute & Networking segment delivered revenue of $1.8 billion in Q2 FY 2021, up 129.5% from the same three-month period a year ago. The segment accounts for about 46% of Nvidia’s total revenue. Operating income grew 321.3% to $691 million. Compute & Networking accounts for about 43% of the company’s total operating income.

All Other

As mentioned above, the All Other category includes expenses not included in the other two segments. Such expenses include stock-based compensation, corporate infrastructure and support costs, acquisition-related costs, legal settlement costs, and other non-recurring charges and benefits deemed to be enterprise in nature. These expenses amounted to an operating loss of $951 million in Q2 FY 2021, more than triple the $300 million operating loss reported in the year-ago quarter.

Nvidia’s Recent Developments

Nvidia recently announced that it has entered into a definitive agreement to purchase Arm Inc. from SoftBank Group Corp. (TSE:9984) for $40 billion. Arm is a U.K.-based semiconductor and software design company specializing in CPU architecture. Nvidia says the acquisition will help it to expand its AI capacities and advance a range of technologies from cloud computing and smartphones to self-driving cars and the internet of things (IoT).

How Nvidia Reports Diversity & Inclusiveness

As part of our effort to improve the awareness of the importance of diversity in companies, we offer investors a glimpse into the transparency of Nvidia and its commitment to diversity, inclusiveness, and social responsibility. We examined the data Nvidia releases to show you how it reports the diversity of its board and workforce to help readers make educated purchasing and investing decisions.

Below is a table of potential diversity measurements. It shows whether Nvidia discloses its data about the diversity of its board of directors, C-Suite, general management, and employees overall, as is marked with a ✔. It also shows whether Nvidia breaks down those reports to reveal the diversity of itself by race, gender, ability, veteran status, and LGBTQ+ identity.