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Solid Data-Center Demand to Aid NVIDIA (NVDA) Q1 Earnings

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NVIDIA Corporation’s (NVDA - Free Report) first-quarter fiscal 2021 results, scheduled for a May 21 release, are likely to reflect benefits from strong demand for cloud computing and data centers.

The company’s fate is tied to its data-center segment, which accounts for a bulk of NVIDIA’s revenues. Robust year-over-year and sequential growth in data-center revenues in the last reported quarter, along with management's upbeat guidance for the soon-to-be-reported quarter, raises our optimism around this segment.

Notably, the Zacks Consensus Estimate for the Datacenter segment revenues in the fiscal first quarter is pegged at $1.06 billion, indicating a surge of 66.6% year over year and 9.1% sequentially.

Click here to know how the company’s overall fiscal first-quarter performance is likely to be.

Data-Center Business Likely to have Aided Q1 Performance

NVIDIA’s fiscal first-quarter performance is anticipated to have benefited from strength in its data-center business on the growing adoption of cloud-based solutions amid the coronavirus-led global lockdown.

The work-and-learn-from home necessity is stoking demand for cloud storage. Furthermore, the lockdown has increased the usage of online and e-commerce services globally. Therefore, data-center operators are enhancing their capacities to accommodate the demand spike for cloud services.

The data-center business presents a solid growth opportunity for the company. As more and more businesses are shifting to cloud, the need for datacenters is increasing. This is likely to have positively impacted the company’s quarterly performance. Increase in Hyperscale demand and growing adoption in the inference market are anticipated to have been tailwinds.

Growing adoption of Conversational AI among hyperscale customers is likely to have been a key driver. NVIDIA believes Conversational AI to be a powerful catalyst for it in both training and inference. Also, the increasing adoption of Natural Language Processing by cloud players is likely to have been an upside.

Further, growing adoption of the company’s T4 GPU in public clouds makes us optimistic this earnings season. The company’s shipments for T4 GPUs in the last reported quarter increased four times, year on year, on solid public cloud deployments and higher demand for AI video analytics applications. Last September, Amazon (AMZN - Free Report) cloud computing arm, AWS, announced general availability of the T4 globally, following the T4 rollout on Alphabet’s (GOOGL - Free Report) Google Cloud platform earlier in 2019.

Preferred by the data-center operators, NVIDIA’s GPUs are likely to have helped the company grab a larger market space. Their impact on the quarterly performance remains to be seen.

Zacks Rank and Another Key Pick

NVIDIA currently carries a Zacks Rank #2 (Buy).

Another top-ranked stock in the broader technology sector is InterDigital, Inc. (IDCC - Free Report) , flaunting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The long-term earnings growth rate for InterDigital is currently pegged at 15%.

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