Nvidia set to open at record on soaring Volta chip demand

(Reuters) - Shares of Nvidia Corp (NVDA.O) are set to open at a record on Friday, after it posted stellar quarterly results powered by higher demand for graphics chips used in gaming and data centers, and the rapid adoption of its new Volta chips for AI and driverless cars.

Nvidia’s gaming revenue blew past estimates but it was the data center business, the driver of future growth, that made analysts stand up and take notice as revenue in the unit more than doubled in the latest third quarter.

Revenue from the datacenter business, Nvidia’s second-biggest revenue contributor, rose to $501 million, beating analysts’ estimate of $474.2 million, according to Thomson Reuters I/B/E/S.

“Datacenter results have been stronger than forecast and we underestimated the value the market would assign to this franchise,” Nomura Instinet analyst Romit Shah wrote in a client note.

Shah raised his rating on the stock to “neutral” from “reduce.”

The company, which gets the bulk of revenue from gaming where it supplies chips for gaming consoles, has seen explosive growth at its datacenters operations.

It attributed that growth to the May launch of its Volta chips as part of its Tesla V100 data center graphic processing unit (GPU) that will power systems ranging from artificial intelligence (AI) to driverless cars.

“Shipments of the Tesla V100 GPU began in Q2 and ramped significantly in Q3 driven primarily by demand from cloud service providers and high-performance computing,” Chief Financial Officer Colette Kress said on a conference call on Thursday.

Nvidia’s datacenter business, which caters to clients such as Amazon.com Inc’s (AMZN.O) Amazon Web Services and Microsoft Corp’s (MSFT.O) Azure, was a point of concern after a disappointing showing last quarter.

But the Volta chip changed all that.

“The ramp of Volta seems to be tracking well, and more importantly, has significant runway ahead, in our view, as a broader set of customers adopt the new architecture in the coming quarters,” Goldman Sachs analysts wrote in a client note.

The company claims that Volta will fuel breakthroughs in every industry and humanity’s moonshots like eradicating cancer, intelligent customer experiences and self-driving vehicles are within reach of Volta-powered systems. bit.ly/2iJPeNN

At least 14 analysts raised their price target on the stock. SunTrust Robinson analysts were the most bullish with a price target of $253. Nomura raised its target to $190 from $110.

Out of 37 brokerages covering the stock, 20 have a “buy” or higher rating; 14 on “hold” and 3 on “sell” or lower.

The company’s shares were up 4.7 percent at $214.80 in pre-market trade.

Nvidia, which has a market cap of $123 billion as of Thursday’s close, saw its share price zoom 92 percent this year.