NVIDIA Corporation (NASDAQ:NVDA) slipped lower even as it reported third-quarter earnings that topped Wall Street expectations. The slide came on the company predicting declines in data center sales in Q4, an area that has emerged as a key driver of the bottom-line driver in recent quarters.
Data Center Business Slowdown
The chip giant has emerged as a key player in the development of chips for powering data centers. Demand for such chips has been growing in recent months, owing to the disruptions triggered by COVID-19 that has seen more people work from home. Likewise, companies have increasingly moved most of their operations online and into the cloud, all but fuelling the data center business.
Nvidia hinting at a decline in data center sales was always expected to trigger concerns in the investment community as most investors have bet on the company’s data center prospects.
Huawei being blocked from dealing with any U.S companies or U.S goods is expected to affect a key market that Nvidia was betting on. Revenue from Mellanox, an Israeli networking chip company Nvidia bought, is expected to drop in Q4 on the company not dealing with Huawei.
Solid Q3
Revenue From the data center segment, more than doubled in the third quarter to $1.9 billion above $1.84 billion expected. Nvidia looks set to counter any slowdown in the data center segment with growth in graphics chips' sale for powering gaming devices.
The Santa Clara, California Chip Company expects revenue of $4.80 billion-plus or minus 2% in the fourth-quarter above analysts’ average estimate of $4.42 billion. In Q3, revenues jumped 37% to $2.27 billion and above $2.06 billion expected.
According to Chief Executive Officer Jensen Huang, Nvidia is firing on all angles as it continues to achieve record revenues in gaming, data center, and overall. In addition, the company is already returning value to shareholders, having already paid $99 million in dividends in the third quarter. Plans are underway to pay the next cash dividend of $0.16 a share before year-end.