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Data Center, Gaming Segments to Aid NVIDIA's (NVDA) Q2 Earnings

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NVIDIA Corporation (NVDA - Free Report) is scheduled to report second-quarter fiscal 2022 results on Aug 18. The company’s fate is tied to its gaming and data-center segments, which accounts for a bulk of NVIDIA’s revenues.

The two divisions are likely to continue benefiting from stellar demand for chips used in gaming, cloud computing and data centers. Solid year-over-year and sequential top-line growth in both segments for the last reported quarter, along with management's upbeat guidance for the soon-to-be-reported quarter, raises optimism.

NVIDIA is benefiting from the pandemic-induced work-from-home and online-learning wave. Robust growth in GeForce desktop and notebook graphics processing unit (GPUs) is boosting gaming revenues. Moreover, a surge in the Hyperscale demand is a tailwind for the company’s data-center business.

Notably, the Zacks Consensus Estimate for the data-center segment’s fiscal second-quarter revenues is pegged at $2.26 billion, indicating a jump of 29% year on year and 10%, sequentially. Its gaming division’s sales are expected to surge 78% year over year and 7%, sequentially, to $2.95 billion.

Click here to know how the company’s overall fiscal second-quarter performance is anticipated to have been.

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What Would Have Driven Data-Center Business?

Accelerated adoption of cloud-based solutions amid the remote-working and online-learning trend is likely to have aided NVIDIA’s data-center business.

Lockdown and social-distancing measures adopted by governments across the world to contain the spread of coronavirus has boosted the usage of online and e-commerce services globally. Apart from this, the pandemic-induced work-and-learn-from-home wave is stoking demand for cloud storage. Therefore, data-center operators are enhancing their capacities to accommodate this demand spike for cloud services.

The data-center business presents a solid growth opportunity for the firm. As more and more businesses are shifting to cloud, the need for data centers is surging. This is likely to have supported NVIDIA’s quarterly performance. Increase in Hyperscale demand and growing adoption in the inference market are anticipated to have been tailwinds as well.

The rising adoption of Conversational AI (artificial intelligence) among hyperscale customers is likely to have been a key driver during the period in discussion. NVIDIA considers Conversational AI to be a powerful catalyst for the company in both training and inference. Also, the rising adoption of Natural Language Processing by cloud players is expected to have been an upside during the fiscal second quarter.

Besides, growing adoption of the company’s T4 GPU in public clouds makes us optimistic. Solid public cloud deployments and higher demand for AI video analytics applications are fueling demand for its T4 GPUs.

Gaming Business to Reflect Continued Momentum

NVIDIA’s quarterly performance is likely to have gained from the pandemic-induced stay-at-home instructions, which are spurring demand for its gaming chips as people surf games to stay engaged and entertain themselves indoors.

In the last reported quarter, revenues from the gaming business unit shot up 106% year over year and 11%, sequentially, to $2.76 billion on higher sales across the company’s notebook and desktop gaming GPUs and game console SOCs.

Better visualization and speed are needed for a thrilling gaming experience, which NVIDIA successfully provides through its portfolio of Pascal architecture-based GPUs. Moreover, with the emergence of massively multiplayer online games (MMOG) and Gaming-as-a-Service (GaaS) concepts, the demand for GPUs has been shooting up exponentially. The trend is likely to have positively impacted the company’s gaming business during the to-be-reported quarter.

Zacks Rank and Key Picks

Currently, NVIDIA carries a Zacks Rank #3 (Hold).

Better-ranked stocks in the broader technology sector include Microsoft (MSFT - Free Report) , Cadence Design Systems (CDNS - Free Report) and Texas Instruments (TXN - Free Report) , all carrying a Zacks Rank of 2 (Buy), at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The long-term earnings growth rate for Microsoft, Cadence Design and Texas Instruments is currently pegged at 11.5%, 11.7% and 9.3%, respectively.