Q2 2022 NVIDIA Corp Earnings Call
11% sequentially and up 85% from a year earlier.
<unk> remained exceptionally strong.
Pacing football we are now four quarters into ampere architecture product cycles for gaming and it continues to be our best effort.
At Computex in June we announced two powerful new Gpus for gamers and creators. The G Force RPX 30, 80, Ti and RPX 30, 70, Ti delivering 50% faster performance than their prior generation with acclaimed features such as real.
Retracing, Nvidia DSS AI, rendering reflex and broadcast.
Laptop demand was also very strong Oems adopted and peer architecture Gpus and a record number of designs from the top of mind gaming laptops to those two main street price points as low as $799 that bring the power of <unk>.
Peers to gamers students and creators on the gum.
MTR architecture powered laptops feature our third generation <unk> power optimization technology that enables ultra thin designs, such as the new alienware ex <unk> the world's most powerful sub 16 millimeter gaming laptop.
Nvidia RPX technology has reset computer graphics, and spurred our biggest ever refresh cycle.
Empire spend our fastest ramping gaming GPU architecture on steam and the combination of touring and <unk> Gpus has only upgraded about 20% of our installed base, 80% have yet to upgrade to our T X and the audience for global.
Esports will soon approach a half a billion people while the number of those who live stream games is expected to reach over $700 million.
The number of PC gamers on screen is up almost 20% over the past year.
More than 60, RPX games now support in videos, Archie X Ray tracing ordeal ourselves, including todays biggest game franchises, such as Minecraft Fortnite and cyberpunk New RPX games. This quarter include that then Red dead redemption, two one of the two.
<unk> rated games of all time.
Titles like Rainbow succeed and rushed and Minecraft RPX in China with over 400 million players the.
The competitive gamers Nvidia reflects which includes latency is now supported by 20 games.
Let's say, a few words and crypto currency mining.
In an effort to address the needs of minors and direct G force to gamers, we increase the supply of crypto currency mining processors, or CMP and introduced low cash rate G forced to Peters with limited ethereum mining capability over 80% of our Ann.
Peer architecture based G for shipment in the quarter were low cash rate G. P is the combination of crypto to gaming revenue is difficult to quantify.
<unk> revenue, which is recognized in OEM was $266 million lower than our original $400 million estimate on reduced mining profitability and we expect a minimal contribution from CMP going forward.
G Force now reached a new milestone this quarter, surpassing 1000, PC games more than any other cloud gaming circles.
<unk> is available for a subscription of $10 per month getting gamers, a claw access to our T X class performance, even on an underpowered Pcs Mac chromebook iOS or Android device.
Moving to pro visualization.
Q2 revenue was a record 519 billion up 40% sequentially and up 156% year on year.
Sequential revenue growth was led by desktop workstations, driven by demand to outfit design offices at home as remote work becomes the norm across industries. This is also the first big quarter of the Amp tier architecture around peripheral for pro visualization.
Key verticals driving Q2 demand include automotive public sector and healthcare.
At SIGGRAPH last week, we announced an expansion of Nvidia omni versus our simulation and collaboration platform that provides the foundation.
Net averse to.
Your new integrations with Blender the worlds, leading open source <unk> animation tool and Adobe, we're opening the omni versus platform to millions of additional users. We're also collaborating with Apple and Pixar degree advanced physics capabilities to Pixar Universal seem description.
<unk> framework embracing open standards to provide through the workflows to billions of devices.
Omni versus enterprise software is in the early access stage and will be generally available later this year on a subscription basis from in videos partners, including Dell HP, Lenovo and many others.
Over 500 companies are evaluating omni versus enterprise, including BMW, Volvo and Lockheed Martin and more than 50000 individual creators have downloaded omni versus since it entered open beta in December.
Yeah.
Moving to automotive so our Q2 revenue was 152 million down 1% sequentially and up 3% year on year sequential revenue declines in infotainment were largely offset by growth in self driving.
Looking further out we have substantial design wins start to ramp that we expect will drive a major inflection in revenue in the coming years.
This quarter, we announced several additional wins self driving startup auto ex unveiled its latest autonomous driving platform for robo taxis powered by Nvidia drive the performance and safety capabilities of the software defined Nvidia drive platform has enabled auto X to become one of the first company.
In the world to provide full self driving mobility services without the need for a safe to driveline.
Economists trucking strike ecosystem partner plus signed a deal with Amazon to provide at least 1000 self driving system to Amazon's fleet of delivery vehicles. The systems are powered by Nvidia drive for high performance energy efficient and centralized AI <unk>.
And economists trucking startup embarked is building on Nvidia drive the system is being developed for trucks for four major Oems that liner now lets start international.
And Volvo representing the vast majority of the class eight or largest size trucks in the U S.
The Nvidia drive platform is being rapidly adopted across the transportation industry from passenger owned vehicles to robo taxi to trucking and delivery vehicles.
Believe everything that moves will be autonomous someday.
Moving to datacenter revenue of $2.4 billion grew 16% sequentially and 35% from the year ago quarter a year ago.
Quarter, which was our first quarter to include melanoma.
Growth was driven by both hyperscale customers and vertical industries.
Each of which had record revenues our flagship a 100 continue to ramp across Hyperscale and cloud computing customers with Microsoft Azure announcing general availability in June following AWS, and Google Cloud Platform's general availability in prior quarters.
Vertical industry that demand was strong with sequential growth led by financial services Supercomputing and telecom customers.
We also had exceptional growth in French, which reached a record more than doubling year on year revenue from infringe focused processors, including the new 830 G. P is which provides four times the inference performance of the Q4 customers are also turning to video.
Used to take AI to production and shifting from Cpus to J P is driven by this stringent performance latency and cost requirements of deploying and scaling deep learning AI workloads.
And video a networking products posted solid results.
We see momentum across regions, driven by our technology leadership with upgrades to high speed products, such as connectors, six as well as new customer wins across cloud service providers enterprise and high performance computing.
We extended our leadership in Supercomputing Tomatoes top 500 list shows that as video technologies power 342 of the world's top 500, supercomputers, including 70% of all new systems and eight of the top 10 to help companies.
Harnessed, the new industrial high performance computing Revolution.
We need to deliver a turnkey AI datacenter solution with the Nvidia <unk> Super pad, the same technology that powers, our new Cambridge, one supercomputer in the UK and a number of others in the top 500.
We expanded our AI software and subscription offerings, making it easier for enterprises to adopt AI from the initial development stage through to deployment and operations, We announced Nvidia based command our software as a service offering for operating and managing large scale.
Multi user and multi team AI development workloads on <unk> Super Pod based command is the operating and management system software for distributed training clusters.
We also announced general availability of Nvidia, we come out of advantaged edge AI software as a service offering.
<unk> helps companies solve the problem of securely deploying and managing AI applications across thousands of remote locations combined with the efficiency and simplicity of central management with the cost performance and data sovereignty benefits of real time processing at the attic.
<unk>.
Early adopters of fleet demand include some of the worlds, leading retail manufacturing and logistics companies and then specialty software companies that work with them.
The new Nvidia based command and fleet command software and subscription offerings, followed last quarter's announcement of the Nvidia AI Enterprise software suite, which is an early access with general availability expected churn our enterprise software strategy is supported by the video certified system.
So Graham with server Oems, which are bringing to market over 55 systems ready to run on Nvidia AI software out of the box to help enterprise simplify and accelerate their AI deployment.
Video ecosystem keeps getting stronger Nvidia inception, our acceleration platform for AI start ups, just surpassed 8500 members with cumulative funding of over 60 billion and members in 90 countries inception is one of the largest AI startup.
Our systems in the World.
<unk> now has been downloaded 27 million times since it launched 15 years ago with $7 million in the last year alone.
Archie for in France has been downloaded nearly two 5 million tonnes across more than 27000 companies.
Total number of developers and the Nvidia ecosystem now exceeds $2.6 million.
Four times in the past four years.
Let me give you a quick update on all of them.
And nearly one year since we initially agreed to combine the farm we have gotten to know the company its business and.
It's people much better we believe more than ever in the power of our combination and the benefits it will deliver for them.
Okay and for its customers across the world in the era of AI arms has great potential we love their business model and commit to keep it open licensing approach and within video scale and capabilities will make more embedded customers while expanding into.
Data Center, Iot and other new markets.
Nvidia accelerated computing, which starts with the C. P. In whatever new markets are open with the CPU and our accelerated computing opportunities, we've announced accelerated platforms for Amazon Graviton Ampere computing media attack and Marvell.
Spanning cloud computing AI cloud gaming supercomputing edge AI to chrome Pcs.
We plan to invest in the UK and we have with the Cambridge one supercomputer.
And through arm, making UK, a global center in science technology and AI.
We are working through the regulatory process, although some arm licensees have expressed concerns and objected to the transaction and discussions with regulators are taking longer than initially thought we are confident in lithium and that regulators should recognize the benefits of.
The acquisition to arm its licensees and the industry.
Moving to the rest of the P&L.
GAAP gross margin of 64, 8% for the second quarter.
It was up 600 basis points from your earlier, reflecting the absence of certain acquisition related costs GAAP gross margins were.
It's up 70 basis points sequentially.
Non-GAAP gross margin was 66, 7%.
70 basis points from a year earlier and up 50 basis points sequentially, reflecting higher asp's within desktop Geforce Gpus are continued growth in high end and peer architecture products, partially offset by a mix shift within data center.
Q2, GAAP EPS was.
94, <unk> up 276% from a year earlier non-GAAP EPS was a $1.48.
89% from a year earlier adjusting for the four to one stock split effective this quarter Q2 cash flow from operations was a record 2.7 build them.
Let me turn to the outlook for the third quarter of fiscal 2022, we expect another strong quarter with center with sequential growth driven largely by accelerating demand in datacenter.
In addition, we expect sequential growth in each of our three market in each of our three other market platforms gaming demand is continuing to exceed supply as we expect channel inventories to remain below target levels as we exit Q3.
The contribution of <unk> to our revenue outlook is minimal.
Revenue is expected to be six 8 billion, plus or -2% GAAP and non-GAAP gross margins are expected to be 65, 2% and 67%, respectively, plus or -50 basis points GAAP and non-GAAP operating expenses are expected.
Good to be approximately $1.96 billion and $1 three 7 billion respectively.
GAAP and non-GAAP other income and expenses are both expected to be an expense of approximately $60 million, excluding gains and losses on equity securities.
GAAP and non-GAAP taxes are supposed to be expected, 11% plus or -1% excluding discrete items.
Total expenditures are expected to be approximately 200 million to $225 million.
Further financial details are included in the CFO commentary and other information available on our site.
So in closing, let me highlight upcoming events for the financial community.
We'll be attending the following virtual events. The BMO technology Summit on August 24, the New Street Big ideas and Semiconductors conference on September nine.
The Citi Global Tech Conference on September 13, the Piper Sandler Global Technology Conference on September 14th and the Evercore ISI Auto Tech and AI Forum on September 21st.
Our earnings call to discuss the third quarter results is scheduled for Wednesday November 17th.
We will now open the call up for questions. Operator would you please poll for questions.
Thank you at this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad will possibly just a moment to compile the Q&A roster and as a reminder, please limit yourself to one question.
Your first question comes from the line of Vivek Arya of Bank of America. Your line is now open you may ask your question.
Thanks for.
Taking my question I actually had a near and longer term question on the datacenter I think near term you mentioned the possibility of accelerating datacenter growth from the 35% rate I was hoping you could give us some more color around that confidence and visibility and then longer term.
Jensen, you've seen a lot of.
Announcements from Nvidia about your enterprise software.
Opportunity I honestly don't know how to model that it sounds very promising but how should we model. It what problem are you trying to solve is it cannibalizing demand you might have otherwise seen from your public power customers or is this incremental to growth. So just any any guidance.
He just insights into how to think about and videos enterprise.
Software opportunity longer term. Thank you.
My first one.
Question.
We earned $2.
We've already reported that we had record revenues.
Don.
Hyperscale cloud and industrial mineral claims since last quarter.
And we're seeing a slowing of the growth.
The information in Hyperscale and cloud comes from.
The transition.
The cloud service providers.
Taking there.
Our applications, which are now heavily deep learning driven and.
<unk> production.
There were several things that we've spoken about in the past that really makes them going on to your platform to scale level.
And.
Is my lungs are mobile.
Oh, yes.
The civil with thermal platforms with simple elegant platform number one and pure GPU, which is known universal Gpus for Iran.
Training, but.
Clearly good for instance, which is terrific and its throughput its terrific.
SaaS respond client as well.
And therefore, the cost of deployment.
Operator.
Applications.
The moment the <unk>.
<unk> is the introduction of tensor RT, which is our optimizing compiler.
Does that.
It makes it possible for us to compile and optimize.
Any any application to on Gpus.
Were those computer vision or initial one Williams gaming.
Conversational, Iran.
Let's remember systems.
The type of.
Applications.
Deployment is normally comes out and then lastly.
Software Influencer Moon, we offer called Titan, which supports every one of our Gpus.
It supports.
<unk> as well as GPU. So every every.
Internet service provider.
Operate the entire data center using.
These things are units already on growth.
So the first element is the deployment of the transition of deep learning applications into large scale deployment.
In the enterprise.
But the application that you're driving AI as you know every enterprise must be once the move in rates towards PMA type companies and so on.
Taking advantage of domestic crohn's and connected devices and artificial intelligence to achieve it.
I didn't have an opportunity to deploy AI services.
Out of the edge.
And.
And in order to do so in order to do so is there are several things that have to happen first we have to create a computing platform that allows them to.
Do training.
It environment that they understand which is a virtualized were achieved.
Largely manage might be aware.
And our collaboration with Vmware accretive.
A new type of systems.
Integrating this enterprise.
It has been.
Quite a significant effort with some volume production today.
Second there is a.
Our survey that allows the enterprise customers the deployment models.
<unk>.
The AI.
AI engine the software suite.
We've been developing over the last 10 years.
<unk> now has been integrated into this environment.
Allows the enterprise to basically run the box there are three elements of our software products versus enterprise.
And.
Now of course that basically puts all of the state of yards and yards.
<unk> engines and libraries.
We industrialize and perfected over the years made it available to enterprise license.
<unk>.
Operating system platform called based command and allows for a distributor at scale.
Software enrollment in the <unk>.
Four.
Training and developing models and then the third is fleet command, which is.
Operating system.
System software product.
Lets you operate and deploy and manage.
The other models out to the edge.
These three D. Three software products in combination with the server called Nvidia certified <unk>.
<unk> taken out through our network of partners.
As a result.
Our strategy to accelerate the adoption of.
Bye.
<unk> customers.
And so.
We're really enthusiastic about about entering into the software business model.
This is a this is an opportunity.
Could represent of course tens of millions of servers. We believe all of them will be GPU accelerated and we believe that enterprises will be we'll be deploying and taking advantage of to revolutionize an industry.
Sure.
Using <unk>.
<unk> traditional enterprise software licensing business model.
This group represents millions of dollars and so on.
Between.
Thank you next question comes from the line of Stacy rather than a Bernstein. Your line is now open you may ask a question.
Hi, guys. Thanks for taking my question I.
I Wonder if you go back and collect the sequential guidance you gave a little bit of color by segment.
If I look at your gaming revenue, it's kind of like three quarters in a row, you've been up call. It ballpark 10.
Our 11% and my understanding is that was sort of a function of your ability to bring on supply I guess what is the supply additions will look like as youre going from Q2 into Q3 and do you think you can still maintain.
That kind of sequential growth or does it dialed down because I also need to I also would play that against your other commentary, suggesting that the sequential growth and I assume on a dollar basis would be driven primarily by data centers.
So how do we think about the interplay with within those comments.
Sequential growth of gaming, especially given the trajectory of out of the last several quarters.
Yeah. So let me, let me start and all but Jensen at about Stacy share question I guess for providing the guidance for Q3 of $6.8 billion in revenue.
Excluding <unk>, we expect our revenue to grow over 500 million sequentially.
Sure about sequential revenue increase will be coming from data center.
We do expect gaming to be up slightly on a sequential basis, but remember we are still supply constrained automotive and programs are also expected to be up slightly quarter over quarter and from a CMC perspective, probably just had minimal amounts in Q3.
So our Q3 results.
Don't have seasonality with some for gaming and are really about the supply.
We believe we can highlight for Q3 <unk> Jensen wants to add any more color.
Yes.
<unk>.
Thank you thanks for the question.
As you know Archie.
Fundamental Lisa.
Computer graphics.
<unk>.
A technology called <unk> that has been the Holy Grail of PCB preference for quite a long time.
35 years.
And research and our engineer research for 10 years.
We finally made it possible to do real time Ray tracing.
Yes.
<unk> demand is there.
Is quite incredible.
As you know we have a large installed bases PC gaming.
The new architecture called GTS based on programmable sugars and move into some 20 years ago.
And now we rebuilt the entire installed base.
And.
Andrew.
In Boston, just an incredible studies, the best selling GPU architecture in the history of our company.
And yet we've only we've only upgraded.
Some 20% less than 20% of our total installed base. So there's another 80% of the world's PC gaming market.
Or have yet to.
<unk> two <unk>.
Meanwhile.
The number of PC gamers in the world grew substantially.
<unk> grew 20% this last year.
And so so I think we.
We're right in the beginning of our RPX transition.
Meanwhile, our computer graphics has expanded into so many different <unk>.
New markets.
<unk> we've known.
We've always believed reinvent the way that people do design.
And we're seeing that happening right now as we speak.
Workstations.
Is growing faster than ever and has achieved record revenues.
And at the same time because of all of our work with cloud gaming, we announced the public clouds.
<unk>.
Cloud graphics, whether its workstations with PC gaming.
Constantly.
So we're seeing we're seeing strong demand in PC laptops, and workstations and mobile workstations in cloud.
And so RPX is really doing great.
Our challenge there is that demand is so much greater than supply.
And disappointing.
Thank you. Your next question comes from the line of Matt Ramsay of Cowen. Your line is now open.
Yes. Thank you very much good afternoon everybody.
Before my question Jensen I just wanted to say.
That's on the Neuss awards that are.
A big honor.
For my question.
I wanted to follow on on <unk> question about supply and Colette, maybe you could give us a little bit of commentary around supply constraints and gaming in the different tiers or price tiers of your gaming cards I'm, just trying to get a better understanding as to how you guys are managing supply across the different price tiers, and I guess it translates into a.
A question of are the gaming Isps that we're seeing in the October quarter guidance are those what you would call sustainable going forward or do you feel like that mix may change as supply comes online. Thank you.
So I'll start here thanks for the question.
On our overall mix as we go forward.
First our supply constrained and our gaming business is largely attributed to our desktop and notebook that can mean a lot of different things.
From our components that are necessary to build so many of our products, but our mix is really important our mix. As we are also seeing many of our gamers very interested in.
In our higher and higher performance products, we will continue to see that as a driver of that overall lift both our revenue and Kansas Star overall gross margins. So there's quite a few different pieces into our supply that we have to think about but we're going to try and make the.
The best solutions for our gamers at this time.
Thank you next question, we have the line from C. J Muse your line is from Evercore. Your line is now open.
Yes, Thank you and good afternoon.
I guess as a follow up question on the supply constraints. When do you think that bill is.
And how should we think about gaming into the January quarter, BBB typical seasonality given I would assume you would continue to be so.
Okay, great. Thank you.
Mobile data.
It'll you can either one of them.
Go ahead, Jonathan I'll follow up if there's some other things.
Okay.
One one or one supply constrained in process.
And we're supply constrained rapids, what we're delivering record revenues and graphics.
Cloud gaming.
One cloud graphics, we've grown growing.
Rti's made it possible for us to address the design and the accretive workstations.
Historically the rendering.
Ray tracing and photo realistic images.
Largely been done on Cpus and for the very first time, you can actually accelerated with Nvidia Gpus in these <unk> and so the workstation market is really doing great.
The backdrop of that of course has been when people are building offices.
In their homes.
For many of the designers and creators around the world some $20 million of them.
They have to create.
The building.
A workstation or an office.
At home as well as the one that works.
Working with the new norm.
And.
Meanwhile of course Rts once we spend.
All of our consumer growth.
The few hundred million installed base of PC gamers.
Yes.
And there's tons of opportunity and so there's been a whole bunch of reasons, we're achieving record revenues normally supply constrained.
We have enough supply to meet.
Our second half.
Company gross claims.
John.
And next year next year.
We expect to be able to achieve our company's growth plans for next year.
Meanwhile, Meanwhile, we have and are securing.
Pretty significant long term supply commitments.
As we as we expand into all these different marketing initiatives that we've sort of seen ourselves upfront.
And so I think.
I would expect I would expect that.
You'll see a supply constrained environment.
For.
The vast majority of next year.
Mike just a moment, but a lot of that has to do with our demand and system upgrades.
Archie has more than.
Once in a generation.
Peter modern computer graphics.
Once this happens.
Okay.
This is an injunction.
And you could see from that.
Thank you next question comes from the line of Harlan sur of Jpmorgan. Your line is now open.
Good afternoon, congratulations on the strong results I'll look at execution the monarchs networking franchisees, there's been a really strong and synergistic addition to gaming video compute portfolio I think.
In the near to midterm. The team is benefiting from the transition to 204 hundred gig networking connectivity in cloud and hyper scale and then I think in addition to that you guys are getting some good traction with the Bluefield smart beta products.
Can you just give us a sense on how that business is trending year over year, and you expect continued quarter over quarter networking momentum into the second half of this year, especially.
As the cloud and Hyperscale is or go into a server in capex spending cycle.
Yes, I really appreciate that question.
Alright.
No one had a solid growth quarter.
Yeah.
The non us networking business has really grown incredibly.
There are three three dynamics happening all at the same time.
Post this.
Transitioned and we're talking about.
You know that the world data centers Hyperscale data centers are using quantum computing comp disaggregated.
Basically with a single application is running on multiple servers at the same time it is.
What makes it possible for them to scale up more.
For users.
And our application or service type.
To add more servers, and so with the ease of scale off.
This aggregated computing provides also put enormous pressure on the network.
And at <unk>.
World's lowest latency and high.
Bandwidth and performance networking.
And so the the ability.
Our ability to scale out.
And the ability to.
Provision disaggregated and applications.
There is really much much better more announcement. So that's the first number one number two.
Almost every company in the world has to be a high performance computing company.
You see the consumers' promoters one after another or building effectively supercomputers.
Whats historically.
Infiniband in supercomputing datacenter supercomputing centers.
The cloud service providers have to build supercomputers themselves and the reason for that is because of artificial intelligence and tuning this gigantic models.
The rate of growth.
So.
Our network sizes.
AI models maintenance.
Double every two months.
The doubling every year or two years is doubling every two months and so you could imagine this time when I was talking about train AI models that are 100.200 trillion parameters launch.
The human brain has 150 plus.
Trillium.
And so our nuance and so that gives you a sense of the scale.
Our model is that people are developing.
So you're going to see supercomputers.
Bill.
In melanoma Infiniband.
And the high speed.
Networking, along with Nvidia, GPU computing, and more and more cloud service providers.
Youre also seeing it in.
Enterprises.
For us and the discovery.
Drugs.
Theres, a digital biology revolution going on.
Compensation is stable.
The large scale computing that we're able to do now and in.
In line, better understand biology, and better understand chemistry.
And bringing both of those fields into the field and information Sciences.
And so you're seeing large people continues to be both.
Prices around the world as well.
The second dynamic has to do with <unk>.
On currently grade networking.
Infiniband mobile conversion.
That's a standard.
In high performance computing and the third dynamic.
Hi.
Yes.
Datacenter is growing software.
In order to in order to orchestrate and.
And run a datacenter, where just a few people.
Essentially run their entire data center.
Hundreds of thousands of servers as it is just one computer in front of you.
That entire datacenter is software defined.
The amount of software that goes into the software defined datacenter running on today's Gpus.
As the network is that the stores that are now because of zero Trust.
The security stuff all of that is putting enormous pressure.
On the available.
Imputing capacity for applications, which is ultimately where data centers are designed to do and so.
Software defined datacenter.
To have a place to put that infrastructure software and accelerated offloaded to accelerating and very importantly to isolated from the application point, so that intruders jump into the operating system of New Orleans and data Center.
Davidson.
And so the answer to that Bluefield.
The ability to offload accelerators.
Isolating this.
Datacenter software infrastructure.
And to us.
Throughout all of the CPU to run what they are supposed to run with the application.
Just about every data center in the World is moving towards a zero trust.
Model.
And boutique owners, just incredibly well positioned for these three dynamics with disaggregated computing, which means.
Really strong across networking.
Every company needing high performance computing.
And then lastly.
Software defined datacenter, scoring.
Trust and so these are these are really important dynamics and I appreciate the opportunity to tell you on that.
This is Tom obviously super excited about.
About the prospects.
We do business in.
The important second half until these modern data centers.
Thank you next question comes from the line of Aaron Rakers of Wells Fargo. Your line is open.
Yes. Thanks for taking the question I think you hit on a lot of questions around the datacenter network.
So maybe I'll just ask kind of on a P&L basis.
One of the things that I see in the results or more importantly, the guide is.
You're now collect guiding over 67% gross margin potentially I'm curious as we move forward how do you think about incremental.
Operating gross margin upside still from here.
And how youre thinking about the operating margin leverage for the company for here through the P&L. Thank you.
Next let me, let me take that and if you could just follow up.
With some of the details of it Greg I think at the highest level.
I really appreciate the question of the highest level.
Pointing to realize is that artificial intelligence.
This is the single greatest.
Technology of course, the computer industry has ever seen and potentially the world over.
So the automation.
Opportunities automation opportunities, which drive productivity, which translates directly to cost savings the company is enormous.
And so it opens up it opens up opportunities for technology and computing company like I've never never happened before and let me just give you. Some example.
Fact is that we can apply so much technology to warehouse logistics retail automation.
Customer call Center automation is really quite impressive.
Frankly, we could automate truck driving.
Last mile delivery.
Providing a automated chauffeur.
Those those conservatism and benefits.
Our products are never imaginable before.
So the size of the industry is more on the industry.
The computer companies like yourselves.
Our partner has expanded tremendously.
And so.
The thing that we want to do is to investors.
Ah.
Smartly.
But as <unk>.
As quickly as we can to go after the large operating large business opportunities, where we can make a real impact.
And in doing so.
While doing so to do so in a way that is architecturally sensible one of the things that is really an advantage of our company.
Is the nature of the way that we built products the nature of the way that we build software.
Our discipline around the architecture.
Which allows us to be so efficient.
Ill doing while addressing climate science on the one hand digital biology on the other art.
Artificial intelligence and robotics and self driving cars.
And of course, we already talked about computer graphics and videos.
Using one architecture, and having the ability to and having the discipline now.
For almost 30 years.
It has given us incredible operating leverage that's where the vast majority of our operating leverage comes from which is architectural.
Technology is architectural products or architectural millwork and companies that have built architectural.
So hopefully as we go after these large large market opportunities.
<unk> has provided us.
And we do so in a smart and disciplined way.
With great leverage through our architecture.
We can continue to drive.
Really great operating leverage.
The company and for our shareholders.
Thank you we have the next question comes from the line of John Pitzer of Credit Suisse. Your line is open.
Yes. Good afternoon, guys. Thanks for letting me ask the question I apologize for the short term nature nature question, but that's what I get asked most frequently.
Kind of a return to the impact of crypto, what the potential impact of crypto Colette Jensen is there any way to kind of gauge the effectiveness of the low ash rate G Force why only 80%.
Not 100% and how confident are you that the CMP business being down is a reflection of crypto cooling off versus perhaps.
<unk> not being that effective and I bring it up because theres a lot of blogs out there that would suggest there.
As much as you guys are trying to limit the ability.
Miners to USG for US there are some workarounds.
Yeah.
Go ahead.
Yes, let me start there and answer a couple of questions about.
Our strategy that we've put in place.
In this last couple of quarters as you recall, what we put in place for us from a cash rate cards as well as putting in the CMT cards. So about how straight cars were to provide for more supply for RG force gamers that are out there we articulated one of the metrics that we were located.
What percentage of those cards.
In <unk>, we were able to sell with.
No rush hour charge.
Most all of our cards and <unk> pass rates, but also we are selling other types of coach as well, but at this time as we move forward, we're much higher than 80%, but just at the end of this last quarter.
Approximately so yes that is moving up.
So the strategy is in place and will continue as we move into Q3.
Over to Jensen here to see if you can discuss product.
There is no there is.
The question about the strategy of how we're steering do post the funding.
We moved incredibly fast.
With CMT and <unk>.
Hi, John.
Settings for $40.
Our entire strategy of bumps during two points to gaming.
Every reason to believe that because of comprise.
Theme, which is really a measure of gamers.
<unk>.
The rate of growth.
The adoption of Empire Gpus.
There are some even more so.
Vessel.
But there are several reasons why is it different.
The first reason of course is available.
Hello, HR, which is new and the speed of which we funded with BNP.
During Q4 support again second.
It's at the very beginning of the.
I am here in Rts cycles.
As I mentioned earlier.
RPX in the complete reinvention of computer graphics.
Every every.
And the evidence is not that gamers are incredible.
Kinder Morgan is incredibly excited on interesting.
This form of computer rendering graphics rendering.
Just dramatically more beautiful.
And.
We're at the beginning of that cycle and only 20% has been upgraded so far with 80% to go.
In a market that is already quite large installed base is quite low but also grown last year gaming grew 20% and just measured by.
The third reason is that.
Our demand is strong and our channel.
And you can see what other new England with <unk>.
Where is the supply.
As quickly as we're shipping it.
We're strong with the World and then and then lastly.
And we just have more growth drivers.
Today.
Tegra <unk>.
And we have the biggest wave of MBS and video and laptops.
Just.
Tom.
Fastest growing.
Segment.
Our computing.
And we have the largest wave of upcoming.
The demand for Archie has been workstations.
Previously the worsening market.
It was a slow growing market is not a fast growing market.
<unk> achieved.
Cheap lately.
And after more than a decade of working on client losses.
<unk> Internet and so on.
All of these segments.
Hum demand.
While we continue to deploy limited.
I think.
Situations are very different.
Hum.
Okay.
Yeah.
Thank you. The next question comes from the line of Chris Kastner, Our framework James Your line is now open.
Yes. Thank you. Good evening. My question is about the split between the Hyperscale and the vertical customers in the datacenter business and the trends youre seeing in each.
I think in your prepared remarks, you said both would be up in the October quarter.
But I'm interested to see if you're seeing any different trends there, particularly in the vertical business as perhaps business conditions normalize and the company's return to the office.
Just their spending plans accordingly.
Yes.
Let me start out with the question and I'll, let Jensen ask the table so.
So far with our datacenter business with our Q2 results our vertical industries are still quite a strong but our business is going to our hotels make up the other.
A portion of that.
Slightly below the 50% and then we also have a very small percentage.
But doing quite quite well.
As we move in.
Q3, as we've discussed we will see an acceleration of both our vertical industries and Walmart.
With that backdrop will shift Jensen has additional commentary.
Hmm.
There's a fundamental difference in.
And Hyperscale.
<unk>.
And the world of Hyperscale orders and Internet service providers, making recommendations on on movies and songs.
Articles.
Uh huh.
Search results and so on and so forth.
And the difference.
The improvement in micro seasons that deep learning artificial intelligence will be needle moving for them.
In the world.
The reason why artificial intelligence.
This transformative.
Recognizing that most of the things I just mentioned earlier, it's not moving online and the world's largest industries, whether it's women's health healthcare already but just as with transportation and retail.
Vast majority of the reasons why.
Some of the physical Sol.
And to the industry, whether it's energy or.
Or transportation and software healthcare.
Recently the stimulation.
The simulation with the world.
Non achievable using traditional first principle simulation approaches.
Artificial intelligence or data driven approaches has completely shaken shaken that off and put it on the non <unk>.
Some examples.
Whether it whether it is.
Using artificial intelligence.
So that you could speed up the simulation of the prediction of the protein structure.
Okay.
Which was recently achieved by a couple of very important network.
Groundbreaking and by understanding the proteins a protein structure PD spuds are we understanding so we can better understand its a function and how it would adapt to other proteins and other chemicals.
It's a fundamental step.
Step of the process in drug discovery and that has just taken a giant leap forward in the area.
Climate Science.
It is now possible to consider using.
Data driven approaches to create models that overcome.
Not overcome with accelerate and make it possible for us to stimulate much much larger stimulations.
Multifamily geometry award simulations, which is basically climate science.
Really important field of work.
One is impossible.
For another decade at least and just as we made possible using artificial intelligence the realization of real time Ray tracing.
Every field of science, whether it's climate simulation energy, which has been the drug discovery and we're starting to see the industry.
With fusion.
The first principle simulation.
And data driven artificial intelligence approaches its going to get a giant leap up.
And that that that is the second dynamic.
The other dynamic for industry is for.
For the very first time, they can deploy AI models.
Also the urge to do a better job with agriculture to do a better job with.
Asset protection and warehouses to do a better job with automotive and retail.
<unk> is going to make it possible for all of these types of automation to finally finally be line.
And so the dynamics are all very different that last one has to do with edge AI, which was made possible.
Mobile phones.
Putting AI right at the point of data and that is a point of action.
As you need to be low cost you need to be high performance and instantly responses and we can't afford to scream all of the data to the cloud all the time.
Yeah.
And each one of them has been partly difficult.
Thank you. Your final question comes from the line of programs kind of curious Securities. Your line is open.
Great. Thanks, so much for taking my question and chips and I'm wondering if you can talk for a moment about our universe.
It looks like a really cool technology, but I tend to get very few questions from investors about it but it looks to me like this could be.
After it looks like perhaps this is going to pick up.
So she did very well in <unk>.
I meant it in virtual reality, but maybe.
Maybe you could sort of different.
Market or group of markets, it's a bit confusing to us so if you could.
Maybe help us understand that.
I think we would really appreciate it thank you.
I really appreciate the question and it's one of the most important things we're doing.
Yeah.
The.
On the <unk> omnibus first of all just what it is it's a similar thing when we invest physically accurate physically.
And it was made possible because of two fundamental technologies, we mentioned one of them.
Is of course, Rts the ability to to physically stimuli.
Right.
Behavior in the World, which is interesting.
We do too.
<unk> or seemingly decisions stimulate the artificial artificial intelligence behavior.
Yeah.
Agents and objects instead of the world. So we have the ability now with similarly.
In a realistic way when we created an architecture that allows us to do in the cloud distributed computing and to be able to scale it out too many months.
Question is what would you do with such a thing.
Listen the winter with the simulators simulation simulation a virtual world.
Sure.
The portals and column connectors portals.
On an industry standard open standards that was pioneered by Pixar and as we mentioned earlier.
Partnering with the swelling in Appleton into even even broadly adopted more broadly adopted upon USB universal team description, so basically portals.
Warm holes into virtual worlds and it's virtual world will accumulate to be stimulating.
It could be.
For consumers to do it.
BNP for.
For consumers.
And in the world with the industry needs to use you could use a poor stimulating robots to the ROE.
<unk> can learn how to be robots inside these virtual worlds before appointing.
Downloading from the stimulus stimulus to the real World you could do there to stimulate factories.
<unk>, which is one of the early work that we've done with BMW showed GTC factory of the future that is designed completely anomalous.
The related in <unk>.
Robots training on numbers.
Goods and materials that our regional <unk>.
CAD data.
Put into the battery.
The logistics plan like the ERP system.
This is the ERP system of physical goods.
Physical simulation.
Stimulated.
Through this omnibus World and you could plan the entire factory in order to be an entire seems to be some cost.
Digital.
The digital twin would allow us to continually.
New.
New algorithms.
New AI.
New.
And optimization algorithms before we deploy it into the physical world.
And so so what advantages on the <unk>.
Or is this going to be.
And overlay if you will.
Our virtual worlds.
Increasingly people Couldnt motherboards.
Now heard several companies talk about the minimalist we all come from different perspectives.
Some of it from social perspective, some of them from a gaming perspective, some of those in our case.
From an industrial design and engineering perspective.
But the entrepreneurs.
All of these.
All of these different worlds together long term and you'll be able to do you mentioned the RMR youll be able to go into.
The omnibus World.
Using virtual reality, and so warm hole into the virtual world even beyond you couldn't have an AI.
Portal into our world using augmented reality season.
For Piedmont.
You can now purchase.
Hmm.
It's only enjoyed.
Each one of them and we can overlay of into your fiscal <unk>.
Aye.
Yes.
Yes.
I'm fairly sure that at this point in the omnibus or the metal Bruce is going to be.
New economy.
Modules than our current economy.
And.
We'll have more enjoy a lot of our time.
In the future.
Universe and the motivation.
We'll do a lot of work there and we'll have a lot of robust they're doing a lot of work on our behalf.
Good morning issue is resolved.
So on numbers to us as an extension.
Of our AI strategy is an extension of our high performance computing strategy and it makes it possible for <unk>.
Companies and industries to be able to create digital twins.
Similarly the.
Physical versions of corn.
Walk before they deploy it on one of their offering.
Thank you I will now turn the call over back to Mr. Jensen Huang for closing remarks.
Thank you all we had an excellent quarter fueled by solid demand for Nvidia computing.
Premier work and accelerated computing continued tremendous breadth and strength of the computing in Iran.
Enabled by Nvidia accelerated computing developers are creating the most impactful promotions of our time.
Natural language understanding and recommending performs.
Terminals vehicles and logistics centers.
Digital biology, and Science research.
The metal versus world that obeys the laws of building.
This quarter, we announced Nvidia based command and fleet command to develop deploy.
Scale and orchestrate workloads that run in <unk>.
Enterprise software suite.
With our new enterprise software.
<unk> video powered systems and global network of system integration partners.
We can accelerate the world's largest industries as they race to benefit from the transformative power of AI.
We are thrilled to have launched and the others.
A simulation platform nearly five years in the making the run physically realistic virtual worlds and commenced the other digital platforms.
<unk> engineers.
Designers and.
And even the autonomous machine.
<unk> to our members to create digital twins.
In the world.
That helped <unk> robot.
Operating autonomy back too.
Seemingly from autonomous vehicles.
And even predict.
The impact on climate.
The future will have artificial intelligence augmenting our own.
And the numbers augmenting our physical world.
There will be populated by Rio in AI and visitors.
And open new opportunities for our designers scientists.
New businesses.
A whole new digital economy.
Enrollment months.
<unk> is a platform for building the medical condition.
We're doing some of our best work.
And most impactful once in our history and I want to thank all of them as employees for their amazing work and the exciting future. We are inventing together. Thank you.
See you next time.
Thank you. This concludes today's conference call you may now disconnect.
[music].