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Robust Data-Center Demand to Aid NVIDIA's (NVDA) Q3 Earnings

NVIDIA Corporation’s NVDA third-quarter fiscal 2021 results, scheduled for a Nov 18 release, are likely to reflect benefits from stellar 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 data-center segment's fiscal third-quarter revenues is pegged at $1.92 billion, indicating a surge of 164% year on year and 11.7% sequentially.

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

Data-Center Business Likely to Have Aided in Q3

NVIDIA’s fiscal third-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 pandemic-led global lockdown.

The work-and-learn-from-home wave is stoking demand for cloud storage. Furthermore, the lockdown has boosted 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 surging. 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 as well.

The rising adoption of Conversational AI 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 increasing adoption of Natural Language Processing by cloud players is likely to have been an upside during the fiscal third quarter.

Further, growing adoption of the company’s T4 GPU in public clouds makes us optimistic this earnings season. Solid public cloud deployments and higher demand for AI video analytics applications are driving demand for its T4 GPUs. Last September, Amazon’s AMZN cloud computing arm, AWS, announced general availability of the T4 globally, following the T4 rollout on Alphabet’s GOOGL 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 during the August-October period. Their impact on the quarterly performance remains to be seen.

Zacks Rank and Another Key Pick

Currently, NVIDIA carries a Zacks Rank #2 (Buy).

A similar-ranked stock in the broader technology sector is Arrow Electronics, Inc. ARW. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The long-term earnings growth rate for Arrow is currently pegged at 8.5%.

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