NVDA: Volta replacing Pascal

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During the last quarter, NVDA launch Volta GPUs which is the next generation from Pascal GPUs. Last quarter, the data center growth didn’t move much sequentially despite being up 175% yoy. It was really a transition quarter. In what I’ve read and what NVDA has announced, it seems that every major data center company and every major technology company is adopting the new Volta GPUs. I have said before that the speed with which technology is advancing is being underestimated (and I’ve talked about how technology is a major contributor to keeping inflation low). I think NVDA with its GPUs for AI is at the epicenter of technology advancement. Anyway, with everyone adopting Volta, I expect NVDA to have a monster quarter; it thin guidance will be beaten by a wide margin, mainly due to the data center market adoption of Volta GPUs (this is my opinion).

In addition, I believe that NVDA GPUs will have substantial sales into the cryptocurrency mining market; Bitcoin prices and bitcoin trading has been much higher and much stronger in the current quarter compared to the last quarter; the average bitcoin price in NVDA’s last quarter was $2349. In the current quarter, the bitcoin price has been above that level the entire time, with the average at about $3967 (through Sep 26 with the quarter about 2/3s through).

In addition, it has been reported that GPUs for the gaming market had shortages last quarter. This means there was unlikely unmet supply for the demand. I think there will be a catch-up in the gaming market in the current quarter.

I have place a bet on a big earnings beat with the following options trade which I put in place a few weeks ago:

Bought $180 calls
Sold $180 calls

Sold $190 puts (since rolled these up to $200 puts)
Bought $170 puts (have since rolled these up to $180 puts)

Max loss per contract is $500 (after taking profits from the roll up of the puts) and max gain is around $2250 per contract assuming NVDA price goes above $200.

All expiration dates are Nov 17th which is a couple weeks after earnings will be announced.

I’m not suggesting that anyone else do this or a similar options trade (do so at your own risk).

Chris

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Bought $180 calls
Sold $180 calls

I meant that I sold to $200 calls to reduce the cost of the trade.

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I agree with you Chris. The next several quarters should be excellent in the data center. Cloud providers competing against each other for high margin business that AI processing is.

However, on meeting unmet demand “In addition, it has been reported that GPUs for the gaming market had shortages last quarter. This means there was unlikely unmet supply for the demand. I think there will be a catch-up in the gaming market in the current quarter” maybe not.

At my local Micro Center the sign was back up again, “limit to GPUs per customer.” Meaning that there are still people hoarding the GPUs and they cannot keep them in stock, and their inventory sources are limited.

Excellent for pricing however. Nvidia’s plan to put out a mining only GPU version is brilliant move. I have no idea if it is out, or when it will be out, but ti will resolve many of the issues with gaming with used GPUs on sale following a bust of crypto currency or the like. Seems, however, with the usual ups and downs, that cryptocurrency is inevitable and will continue to grow as the need for a universal currency, that can smooth the transactional risk of international trade, will only grow over time.

What could happen, however, are too many different cryptocurrencies causing a glut. But well beyond my I.Q. level to figure all that out.

Tinker

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At my local Micro Center the sign was back up again, “limit to GPUs per customer.” Meaning that there are still people hoarding the GPUs and they cannot keep them in stock, and their inventory sources are limited.

Interesting. On the last conference call I thought I read that Huang (CEO) said that they would be able to meet demand. I presume that he would then build sufficient inventory to meet demand even if demand was higher than expected. Perhaps demand this quarter is SO high that even with increased investment in inventory, NVDA could not keep up with demand. If true, this would foreshadow a big revenue number, particularly if ASPs are higher due to shortages.

Here are some of the things that Huang said:

On the volatility (fluctuations in demand) of the cryptocurrency market:

we have such large volumes, we have the ability to rock and roll with this market as it goes.

There are still small miners that buy GeForces here and there, and that probably also increased the demand of GeForces. There were a lot of shortages all over the world. And as we go into this quarter, there’s still cryptocurrency mining demand that we know is out there. And based on our analytics and understanding of the marketplace, there will be some amount of demand for the foreseeable future. But it’s also the case that there were gamers whose needs and demands were not filled last quarter.

Now here’s the specific question on meeting demand:

Thanks for taking the question and congratulations on the very good execution and capitalizing on the crypto opportunity. Jensen, I wanted to start just connecting a few dots. You had mentioned that there was significant upside from that opportunity. And we’ve seen through checks that we can do via public means that demand was very strong in the quarter. And as I look ahead at the guidance for the fiscal third quarter, it’s up 5% when I think normally it would be up in the low double digits. So can you talk about how comfortable you are with your supply availability here, and if demand was there for double-digit growth if you’d be able to achieve that?

Here’s Huang’s answer:

The second, if the demand were there in the second half with respect to – from a perspective of gaming demand and if there’s any residual crypto demand, we will surely be able to serve it. And then lastly, the factors related to our guidance, our guidance is we’re comfortable with our guidance. We’re happy with our guidance, and we want to have an opportunity to come back and give you an update in Q3.

Again, maybe the demand was so high that they can’t meet it.

Chris

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Chris,

It was about 3 weeks ago last time I was at the Micro Center. I may drive by again this weekend and see if there is still the same two per customer signs.

Tinker

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I may drive by again this weekend and see if there is still the same two per customer signs.

A retailer might put up such a sign when such rumors are circulating just to get people to buy, regardless of actual supply.