Daily Brief: Nvidia Wants More Cloud In Its Future, Less European Union

Daily Brief: Nvidia Wants More Cloud In Its Future, Less European Union

over 2 years ago3 mins

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Nvidia reported better-than-expected quarterly earnings earlier this week, and the US chipmaker sure is in bright spirits about its remarkably cloudy-looking forecast.

What does this mean?

Nvidia made a name for itself by manufacturing graphics chips for gamers. That’s still the biggest part of its business today, so it’s a promising sign that the segment’s sales grew 42% last quarter compared to the same time last year. But it was Nvidia’s data center business – which sells cloud computing chips – that really impressed investors: its sales grew by a better-than-expected 55% last quarter. That helped boost the company’s revenue by 50% to a record high of $7 billion. Nvidia seems optimistic about the future too, giving a higher-than-expected revenue forecast for this quarter. Investors didn’t need telling twice: they sent its shares up 10%.

Nvidia stock
Source: Google Finance

Why should I care?

For markets: Nvidia’s found its niche.

Nvidia’s share price has more than doubled this year, bringing its market value to around $800 billion. That’s over three times as much as that of rival chipmaker Intel, even though Intel’s yearly revenue is three times higher than Nvidia’s. Investors, after all, value growth above all things, and Nvidia has that locked down: its chips are far better suited than Intel’s to artificial intelligence, which is one of the fastest-growing areas of the cloud industry. That might be why Nvidia’s quarterly revenue has grown by 56% on average over the last two years, versus Intel’s measly 4%.

Nvidia vs. Intel

Zooming out: Life isn’t fair.

Sweet results or no, Nvidia’s probably a little bitter right now: the firm’s been trying to acquire British chip designer ARM for over a year, but Europe opened a potentially deal-scuppering investigation into the transaction last month. And it wasn’t done there, saying this week that it’s also looking to subsidize European chipmakers in a bid to ease the supply crisis – a move that would give them an unfair advantage over non-European chipmakers like Nvidia.

Keep reading for our next story...

Alibaba’s Year Just Went From Bad To Worse

Alibaba image

Alibaba reported worse-than-expected earnings on Thursday, adding salt to the Chinese ecommerce giant’s wounds after a grueling year in the trenches.

What does this mean?

It’s fair to say investors were already pessimistic going into Alibaba’s earnings update: it’s hard not to be when you’re sifting through slowing economic growth numbers, rising coronavirus cases, and a slew of government-led crackdowns on China’s tech industry. But Alibaba’s revenue still fell short of expectations, and so did its sales outlook for this quarter despite record Singles’ Day sales. The only thing that came in higher than expected, in fact, was the 39% drop in profit compared to the same time last year. Investors didn’t take it well: they sent Alibaba’s shares 11% lower.

Alibaba market value
Source: The Wall Street Journal, FactSet

Why should I care?

The bigger picture: Pinduoduo spies an opportunity.

Alibaba’s had a tough year, having been slapped with a $2.8 billion fine for “anticompetitive practices” in April. But the $390 billion company could take that pocket change on the chin. What it couldn’t shrug off was the fact that it also had to dial back on those practices. That’s since opened up the way for rivals like JD.com and Pinduoduo to step in, with both firms recently ramping up spending to win over Alibaba’s customers. It seems to be working: the number of shoppers on Pinduoduo overtook those on Alibaba earlier this year.

Alibaba vs. peers

Zooming out: Anything you can do, I can’t do better.

China’s recent tech crackdowns have left investors looking for alternatives, and India’s been happy to oblige: Paytm – the country’s answer to Alibaba’s digital payments company Ant Group, and backed by the same – made its stock market debut at a $20 billion valuation on Thursday, raising $2.5 billion in India’s biggest-ever initial public offering. It was all downhill from there, mind you: investors – skeptical about the company’s high valuation and path to profitability – sent its shares down 27% on its first day of trading.

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