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Here's Why Nvidia's Stock Is Booming—Again

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Nvidia’s move beyond gaming is still showing great results. Reporting better-than-expected revenue and profits for the last quarter of 2017 on Thursday helped push Nvidia’s stock price up as much as 10% on Friday morning. But with the overall market weak, the stock slipped back to a gain of 3% at midday.

Quarterly revenue rose 34% to $2.91 billion, versus analysts’ average estimate of $2.68 billion, and adjusted earnings per share of $1.72 were up 52% and much better than the $1.16 analysts expected.

But the best surprise as far as Wall Street was concerned was in the continued rapid adoption of Nvidia graphics cards in data centers, where they are used not for gaming but to run machine learning and related artificial intelligence apps. CEO Jensen Huang started selling the company’s latest and greatest Volta line of chips initially only for those corporate clients, making gamers wait to get their hands on the new technology until some unspecified date later this year.

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Sending the limited supply of faster chips to the data center market paid off, as the $606 million of data center sales was double the previous year’s quarter and more than $50 million better than analysts expected on average. For the entire year, Nvidia nvda brought in $1.9 billion in data center sales, up 133% from 2016. The unit should increase another 64% in 2018, analyst Romit Shah at Nomura, says.

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“Datacenter growth is accelerating,” Shah wrote in a report on Friday. “Nvidia’s end market exposure remains best in breed.” He raised his price target to $225 from $190.

“Net net, a very strong report and we see further positive catalysts throughout the year as Volta continues to roll out across the data center and gaming (likely spring launch) markets,” Barclays analyst Blayne Curtis wrote in a report on Friday. He increased his price target on Nvidia’s stock to $265 from $250.

The company’s sales have also benefitted from the boom in digital currencies like Ethereum, which require graphics chips capable of rapid calculating to mine. But CEO Huang tried to downplay sales to the segment, given that the volatility in cryptocurrency prices could eventually lead to a big drop in demand for Nvidia’s cards.

“Clearly, there’s a lot of talk about crypto,” Huang told Barron’s. “And crypto was a real part of our business this past quarter, even though small, overall.”

Huang has also been targeting the automotive market, as self-driving cars will require massive computational power to analyze sensor data about their surroundings. But that market may be a ways off. Sales in the auto unit rose only 3% to $132 million.

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