Work Hard, Play Hard: Nvidia Top Scorer in Gaming and Data Centers During Pandemic
A clear winning company during the Covid-19 pandemic has been graphic-chip producer Nvidia Corp. The company reported fiscal 3Q (ending October) sales of $4.73 Bn, which represent a whopping 57% increase vs the previous year, and it expects to beat analyst estimates in Q4. The company has enjoyed significant success ever since its current CEO Jensen Huang started a transformational process for the company over a decade ago, which took it from a niche player in graphics-processing chips to an artificial intelligence and data-science powerhouse. However, as Covid started its spread throughout the world in early 2020, Nvidia’s growth was supercharged as global demand significantly increased for home computing, video games, and data center services. In stark contrast to competitors such as Intel, the company was able to leverage this opportunity by successfully remaining within product development & release dates and creating hype in the growing gaming community.
In response to a shrinking set of available “Covid-friendly” recreational activities, the public has turned towards the virus-free world of digital entertainment, including video games. This space includes consoles (such as the Nintendo Switch, Sony’s Playstation, and Microsoft’s Xbox) and PC gaming, both of which experienced substantial growth during the pandemic. For example, the Switch console sold more than seven million units in 3Q20 – at one point according to the Wall Street Journal “almost becoming rarer than toilet paper.” Nvidia has profited handsomely from this surge, as it supplies Nintendo with the chip that powers its console.
Some gamers have also taken to building their own gaming PC rigs, sourcing parts from different manufacturers and assembling them at home. Among the most important components in a gaming PC build is the graphics card, and last September Nvidia released the highly anticipated RTX 3080. The demand was such that Nvidia’s website crashed on release day, and many cards ended up in the hands of scalpers that created bots to buy as many units as fast as possible in order to then flip for a quick profit. Nvidia publicly apologized to angry gamers when it ran out of inventory and pledged to put systems in place to reduce scalping.
The company’s success during the pandemic hasn’t been confined to the gaming world. Nvidia has also benefitted immensely from the recent surge in remote working, as its chips are in high demand for cloud computing infrastructure that enables working from home. The company’s chips are also sought after by data centers that use them to perform the complex, lightning-fast calculations that power artificial intelligence. Nvidia’s data center revenues for its latest quarter more than doubled, while gaming-related revenues increased 26%.
While the pandemic hasn’t been a completely smooth ride for Nvidia (hurdles include the botched RTX 3080 launch and negative impacts on other business segments such as professional visualizations), the company has more than doubled its market capitalization during this time period, surpassing Intel as the largest chip manufacturer by value. Nvidia was able to capitalize on the opportunities presented by the pandemic by successfully sticking to its product development schedule and creating substantial hype in the gaming community. Intel, on the other hand, has seen its share price erode 13% over the same period. The company is yet again plagued by product delay issues and announced during the pandemic that it would push the release of its latest-gen chips from 2021 to 2022/23. This unfortunate setback prevented Intel from taking full advantage of the opportunities presented by Covid and highlight the importance of maintaining strict release deadlines. This is particularly important in the fast-paced tech world: analysts estimate that by the time Intel is ready to release its new chips, competitors will be close to releasing even more powerful models.
Nvidia isn’t sitting on its laurels, and already has ambitious plans that will expand its dominance in the post-Covid world. The company has proposed the acquisition of Arm Holdings, a UK-based chip designer, for US$40 billion. This company’s circuit designs are found in most smartphones, and the acquisition would provide Nvidia with a completely new business line which should strongly position it to keep capturing value as the pandemic declines. However, the deal is not yet certain – it has to be approved by regulators, and there are concerns in the industry because it could give Nvidia control over designs used by competitors. The company has pledged that will not use this power unfairly, and expects to receive approval by authorities by late 2021.
Sources:
https://www.wsj.com/articles/nvidia-posts-record-sales-as-pandemic-sustains-demand-for-gaming-data-center-chips-11597871110
https://www.wsj.com/articles/intel-reports-profit-surge-but-warns-of-further-delays-on-advanced-chips-11595536707?mod=article_inline
https://www.wsj.com/articles/nvidia-benefits-from-sustained-pandemic-era-remote-work-videogaming-demand-11605735645
Very interesting article! It would be interesting to see what specific changes the product development process and therefore product teams underwent that enabled them to stay on schedule despite the global pandemic, especially when companies like Intel were unable to do the same. The company seems to be positioning itself to capture value in a post pandemic world with its acquisition of Arm Holdings and it would be interesting to track to see how NVidia capitalizes on the same.
Rolando – very interesting article. Clearly something thta has set Nvidia apart from competitors like Intel has been its ability to dominate the gaming industry, which clearly was favored by the tailwinds created through home confinement during this years. I am curious to understand how they were able to take ahold of this segment from incumbent chipmakers, was it though technical or marketing differentiation that they could somewhat monopolize this market? What are the barriers to entry posed and defnesive moat that is created for other chipmakers to stay behind them? Given the gaming industry’s high growth one would expect there to be a strong incentive for existing players to move onto this sexy covid friendly industry segment.