Factors Driving Higher Margins For Nvidia

November 25th, 2016 by Trefis Team
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Nvidia’s (NASDAQ:NVDA) operating margin steadily increased from 13% in the October quarter of 2013 to 32% in the corresponding period of 2016. The primary factor underlying the strong improvement in Nvidia’s operating margin is the fact that its revenues have surged strongly over the last couple of years, while its operating costs hardly increased. In the table below, we show how the company’s revenues in the third quarter in the last four years increased, while its R&D expenditure as a percentage of revenue during the same period steadily declined.

Screen Shot 2016-11-25 at 4.05.55 PM

Source: Sec-filings

Even in absolute terms, Nvidia’s R&D in Q3’17 as compared to its R&D in Q3’14 increased only 8%, while its revenue more than doubled during the same period. The reason behind low R&D expense and high revenue growth for Nvidia is that it has been able to leverage its research and development efforts undertaken over the years to capture the recent increase in the market opportunity for graphics processors.

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The company is witnessing an exceptional demand for its GPUs in new areas such as data centers and autonomous cars. This is due to the increasing application of GPUs in deep learning applications. Nvidia claims that it could foresee the huge deep learning opportunity five years ago. The company also claims that it has been investing heavily to build a platform for deep learning in its GPUs since then, and the performance improvements it has achieved is reflected in its current line of GPUs with Pascal architecture. Clearly, the company’s transformation from a graphics chip company to a computing platform company is gaining traction.

To further understand the factors driving the growth for Nvidia in detail, check the articles below:

A) What Led To The Surge In Nvidia’s Data-Center Revenues In Q2’16?

B) What Is Driving The Surge In Nvidia’s Automotive Revenues?

C) Factors That Led To The Surge In Nvidia’s Gaming Revenues In Q3

We are in the process of updating our model for Nvidia.

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