By Chavi Mehta and Jane Lanhee Lee
(Reuters) -Chip designer and computing firm Nvidia Corp beat expectations for third-quarter revenue on Wednesday, thanks to strong demand in its data center business on the back of rising cloud adoption.
Data center revenue in the third quarter rose 31% from a year ago, while gaming revenue was down 51% from a year ago. Nvidia shares rose 1% in after-hours trading.
Cloud companies are increasingly using Nvidia chips in their systems. Microsoft Corp is working with the company to build a “massive” computer to handle intense artificial intelligence computing work in the cloud.
As of August, Nvidia’s market share of so-called accelerator chips inside the world’s six biggest clouds’ infrastructure grew to 85%, brokerage Jefferies said in a note in October.
While U.S. export restrictions have been a cause for worry, Nvidia’s production of a downgraded iteration of the A100, called A800, which complies with recent export control rules, has been a bright spot as it helped lessen the financial blow.
And Nvidia Chief Financial Officer Colette Kress said while the export restrictions impacted third-quarter revenue, the decline was “largely offset by sales of alternative products into China.”
“The export restriction put on by the U.S. Department of Commerce was a blessing for Nvidia as Chinese customers started to hoard its Datacenter GPUs,” said Summit Insights Group analyst Kinngai Chan, who upgraded the stock to “buy” from “hold”.
While the A800 chip meets the export regulations for China, asked if it also met the spirit of the regulations, Nvidia Chief Executive Jensen Huang said “it meets the clear test in letter and spirit”.
There have been questions by chip industry executives on whether Nvidia had cleared the changes with the Commerce Department. Nvidia previously declined to comment on that issue.
Nvidia’s gaming business, a segment that once drove its revenue, was hit by weak consumer demand, but also a change in the way Ethereum crypto currency is created.
“This may have contributed to increased after-market sales of our GPUs in certain markets, potentially impacting demand for some of our products, particularly in the low-end,” Kress said.
Nvidia’s GPU chips have been popular for mining crypto currencies but a crypto market rout is also hurting demand. CEO Huang said that going forward he does not expect blockchain to be an important part of the business.
The company’s adjusted revenue for the quarter ended Oct. 30 was $5.93 billion. Analysts on average had expected revenue of $5.77 billion, according to Refinitiv data.
Nvidia forecast current-quarter revenue at $6 billion, plus or minus 2%, versus expectation of $6.09 billion.
(Reporting by Chavi Mehta in Bengaluru and Jane Lanhee Lee in Oakland, Calif.; Editing by Maju Samuel, Richard Chang and Stephen Coates)