Nvidia Sees a Networking Future. Customers Want Its Videogame Chips. - Barron's

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Nvidia has been trying for months to steer investors toward its data-center business.

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Nvidia is dominating the market for videogame graphics-processing units over rival Advanced Micro Devices, even as the company continues to push investors toward its data-center business.

Amid the global Covid-19 pandemic, videogame graphics cards have been selling well, notching double-digit gains during what is usually a period of decline for sales, according to a research note on Wednesday from BMO Capital Markets analyst Ambrish Srivastava. And Nvidia (ticker: NVDA) has increased its share of those sales to 80.4% of the 21.1 million chips shipped, compared with AMD’s (AMD) 19.6%.

Nvidia, though, has been trying for months to steer investors toward its data-center business, making the case that the company’s long-term future lies there. Data in Srivastava’s note supports Nvidia’s claim to some extent.

Srivastava said quarterly revenue from AMD’s data-center graphics processors was about $30 million, down 50% from a year earlier. Similar sales for Nvidia were roughly $1.24 billion, a gain of 89% year over year.

Part of the strength of Nvidia’s data center sales is a result of the company’s new Ampere chip design, the data-center version of which contributed about 25% of such sales in the fiscal second quarter, according to J.P. Morgan analyst Harlan Sur. In a client note Wednesday, Sur said Nvidia executives believe sales are only beginning to ramp up, even as its older-generation designs continue to ship for the next several quarters.

Nvidia executives have made the case that the company’s networking business—the $6.9 billion all-cash acquisition of Israeli networking equipment maker Mellanox Technologies—is crucial to long-term plans, too, because networking connectivity plays an important role in data-center design. Mellanox sales grew to $540 million in the fiscal second quarter, or 14% of Nvidia’s overall sales.

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Sur wrote that Mellanox has several industry leading technologies that have captured significant networking market share.

Of the 42 analysts that cover Nvidia, 34 rate the stock a Buy, six have a Hold, and two rate it a Sell. The average target price is $521, which implies a 1.9% return from Wednesday’s afternoon price.

By contrast, AMD stock isn’t as well liked by Wall Street. Eighteen analysts rate it a Buy, 18 also have a Hold, and four rate it a Sell. The average target price is $75.37, which implies a downside of 13% from Wednesday price.

AMD stock was up 0.2% to $86.51 Wednesday afternoon and shares of Nvidia were up 0.3% to $511.43, both on par with gains for the Dow Jones Industrial Average.

Nvidia stock has climbed 117% this year, as the PHLX Semiconductor index has gained 22%. AMD stock advanced 89%.

Write to Max A. Cherney at max.cherney@barrons.com

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