Thursday, February 22, 2024

Microchip giant Nvidia published its latest earnings release this week, and of course the results were gargantuan because everyone everywhere is buying Nvidia’s advanced chips for artificial intelligence. Today we wanted to dive into Nvidia’s segment disclosures, to see just how rapidly its AI business is eclipsing everything else the company does.

Thankfully, NVidia offers precisely that level of detail in its Segment disclosures. The company reports two major segments: Compute & Networking, which is home to its AI business; and Graphics, harkening back to NVidia’s origins as a maker of chips for high-end video games. See Figure 1, below. The company has an Other category as well, which apparently reports no revenue but does report operating losses.

OK, clearly the company’s AI division is going nowhere but up. To put that growth in perspective, we dumped all this data into a spreadsheet and turned it into a chart. Figure 2, below, compares revenue growth by segment for the last three years. Here we excluded the Other segment since it reports no revenue.

Holy cow, look at that blue line, representing the AI segment! It exploded in Nvidia’s most recent fiscal year (which, for the record, ended on Jan. 28, even though we flag it as 2023). 

Figure 3, below, shows operating income by segment. This time we included the Other segment since it does report several billion in operating losses, even though the segment has no revenue.

Again, note the monster growth in NVidia’s AI segment — enough that the company’s AI segment accounts for essentially all the company’s operating profit, since Graphics and Other pretty much cancel each other out. 

One can see the strategic questions that arise from this situation. If the AI segment accounts for so much of NVidia’s future, then presumably that is where management will invest the company’s resources. So might there be AI-related acquisitions in the future, to complement whatever holes NVidia might have in its strategy? What about the Graphics segment? Clearly it’s doing OK, but compared to the AI segment it’s just slow-poking along? Might the day come when NVidia sells that segment off, to focus all efforts on AI? 

Calcbench doesn’t know the answers to such questions. But we do have the data to bring them to the fore, so you can ponder them yourself.

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