How Nvidia Makes Money

Nvidia’s Compute and Networking segment supercharges revenue growth

Reviewed by Thomas J. Catalano

Nvidia Corporation is a multinational technology company that introduced and innovated the graphics processing unit (GPU). The source of its greatest amount of revenue is its Compute and Networking business segment, which includes artificial intelligence (AI).

Nvidia has continued to deliver leading edge graphics developments through its groundbreaking GPU efforts.

It has become a full-stack (from front-end to back-end) computing infrastructure company that is reshaping how complex computing for diverse purposes gets done.

Nvidia designs and manufactures GPUs for gaming, cryptocurrency mining, and professional applications, as well as chip systems for use in vehicles, robotics, and other tools. AI has become a major focus.

Key Takeaways

• Compute and Networking, which includes artificial intelligence (AI), is Nvidia’s biggest revenue generator.
• The graphics business segment is Nvidia’s second largest revenue generator.
• Nvidia (NVDA) introduced graphics processing units, known as GPUs, a key component of PC architecture and large-scale applications.
• It designs and sells GPUs for gaming, cryptocurrency mining, and professional applications.
• It also sells chip systems for use in vehicles, robotics, and more.

Nvidia’s Industry

Nvidia is a leading company in the semiconductor industry, within the information technology sector.

Its goal is to offer technology solutions for increasingly complex computational challenges in the markets it serves. A major focus for years has been AI. This has intensified as AI development has powered forward and emerged in the public eye.

According to its 10-K filing, Nvidia believes that the market for its products faces intense technological change and changing industry standards.

It is also an extremely competitive market, where performance, product offerings, and access to customers, partners, and distribution channels are critical factors. Other key aspects it must dominate are software support, the ability to conform to industry standard APIs, manufacturing strengths, processor pricing, and total costs.

Competitors

It has a variety of competitors in different areas of the industry. Some of them are hardware and software suppliers and licensors such as Intel Corp. (INTC), Advanced Micro Devices (AMD), and Huwei.

Cloud services companies designing AI computing functionality such as Alibaba Group (BABA), Alphabet Inc. (GOOG), Amazon Inc. (AMZN), and Microsoft (MSFT) are also major competitors.

Nvidia’s Financials

As of March 12, 2024, Nvidia’s market capitalization was $2.26 trillion.

In February 2024, Nvidia announced its financial results for Q4 of the 2024 fiscal year (FY), the three-month period ended Jan. 28, 2024.

Revenue

The company reported record revenue of $22.1 billion, which was up 22% from the previous quarter and 265% year over year (YOY). For the entire fiscal year, revenue was $60.9 billion, up 126% from the previous fiscal year result.

Net Income

It had net income of $12.28 billion, a growth of 33% over the previous quarter and 769% over the previous year’s fourth quarter.

Operating Income

At $13.61 billion, Nvidia’s operating income, which is a profitability metric for its individual business segments, grew 983% YOY from $1.25 billion.

Revenue From Primary Markets

The chip company serves five primary markets—data center, gaming, professional visualization, automotive, original equipment manufacturer (OEM) and other.

Its most noteworthy business results were derived from the first four markets:

• Data center revenue was a record $18.4 billion in the fourth quarter, up 27% from Q3 2024 and 409% YOY. The total in FY 2024 was $47.5 billion, up 217%.
• Gaming revenue was $2.9 billion in the fourth quarter, no change from the previous quarter and up 56% YOY. The total in FY 2024 was $10.4 billion, up 15% YOY.
• Professional visualization revenue was $463 million in the fourth quarter, up 11% from Q3 and 105% YOY. For the year, revenue rose to $1.6 billion, an increase of 1% YOY.
• Automotive revenue was $281 million, an increase of 8% from Q3 and down 4% YOY. For the year, revenue rose to $1.1 billion, an increase of 21%.

Company Chief Executive Officer (CEO) Jensen Huang reported that “Accelerated computing and generative AI have hit the tipping point. Demand is surging worldwide across companies, industries and nations that demand for its AI solutions.”

Revenue From Business Segments

Nvidia reports business results for two business segments: Compute and Networking and Graphics.

Compute and Networking

According to Nvidia’s Form 10-K, the Compute and Networking segment is made up of:

• Data Center accelerated computing platforms and end-to-end networking platforms including Quantum for InfiniBand and Spectrum for Ethernet
• NVIDIA DRIVE automated-driving platform and automotive development agreements
• Jetson robotics and other embedded platforms
• NVIDIA AI Enterprise and other software
• DGX Cloud software and services

The Compute and Networking segment delivered revenue of $47.4 billion in FY 2024, up 215% from FY 2023. The segment accounted for almost 78% of Nvidia’s total revenue.

Operating income, at $32.01 billion, grew 530% YOY.

Graphics

Nvidia’s graphics segment is comprised of:

• The GeForce GPUs for gaming and PCs, the GeForce NOW game-streaming service and related infrastructure, and solutions for gaming platforms
• The Quadro/NVIDIA RTX GPUs for enterprise graphics design
• Virtual GPU (vGPU) for cloud-based visual and virtual computing
• automotive platforms for infotainment systems
• Omniverse Enterprise software for the construction and operation of metaverse and 3D internet apps

The Graphics segment delivered revenue of $13.51 billion in FY 2024, up 14% from FY 2023. The segment accounted for slightly over 22% of Nvidia’s total revenue.

Operating income, at $5.84 billion, grew 28% YOY.

Equity Holdings

Nvidia’s Form 13F includes the following equity holdings and associated values, as of Dec. 31, 2023:

Historic

On Thursday, Feb. 22, 2024, Nvidia’s market capitalization jumped by $272 billion, the largest change ever seen in such value in a single day.

History and Leadership

Nvidia Corporation was founded in 1993 by Jensen Huang, Chris Malachowsky, and Curtis Priem. It is headquartered in Santa Clara, California.

Huang has led Nvidia as President, Chief Executive, and member of the Board of Directors. Before starting the company with Malachowsky and Priem, Huang worked at LSI Logic and Advanced Micro Devices.

Co-founder Malachowsky is a Nvidia senior technology executive who helped spearhead Nvidia’s growth from startup to accelerated computing standout. Prior to Nvidia, he worked at HP and Sun Microsystems. He is an expert in integrated-circuit design and methodology.

Co-founder Priem was Nvidia’s Chief Technology Officer for 10 years. He left Nvidia in the early 2000s.

Nvidia has more than 27,000 employees worldwide and more than 7,500 patents in force and pending.

Recent Developments

• In early March 2024, Nvidia and HP Inc. announced their intention to integrate NVIDIA CUDA-X™ data processing libraries with HP AI workstation solutions. This will drive generative AI development through data preparation and processing work.

• In November of 2023, Nvidia connected the world’s leading AI computing platform with its new NVIDIA HGX™ H200. The platform features the NVIDIA H200 Tensor Core GPU with advanced memory. It is designed to manage enormous amounts of data for generative AI as well as complex and demanding computing workloads.

• In August 2023, Nvidia provided a major upgrade for its Omniverse platform. Omniverse is used with 3D tools and applications. The upgrade “accelerates the creation of virtual worlds and advanced workflows for industrial digitalization.”

• ChatGPT, powered by the NVIDIA DGX™ AI supercomputer, launched in late November 2022. In two months, users numbered 100 million. It instantly became the fastest-growing app in history.

What Happened With Nvidia’s Intended Purchase of Arm?

In February 2022, Nvidia announced that it was terminating its agreement to purchase U.K.-based semiconductor design firm Arm from SoftBank Group Corp. due to significant regulatory challenges.

Is Nvidia Still a Graphics Company?

Due to the rise of AI and the enormous success of ChatGPT, powered by Nvidia’s AI supercomputer, CEO Jensen Huang, shifted Nvidia’s major focus from graphics to AI in late 2023.

How Much Does a Share of Nvidia Stock Go For?

On March 13, 2024, Nvidia shares were trading in the neighborhood of $890 per share.

The Bottom Line

Nvidia Corporation is a global technology company that was founded in 1993. It introduced the graphics processing unit (GPU) for accelerated computing tasks such as graphics rendering, gaming, and video editing.

In late 2023, its primary focus moved from graphics to artificial intelligence due to the massive success of ChatGPT, which is powered by Nvidia’s GPUs, and the resulting demand for its products.

Read the original article on Investopedia.