Nvidia's Enormous Financial Success Becomes . . . Normal

For the past five years, since Nvidia acquired InfiniBand and Ethernet switch and network interface card supplier Mellanox, people have been wondering what the split is between compute and networking in the Nvidia datacenter business that has exploded in growth and now represents most of revenue for each quarter.

Now we know.

Each quarter, Nvidia chief financial officer Collette Kress puts out a commentary that accompanies the financial results for each thirteen week period, which gives out some color on what sold and by how much. As the entire world knows, Nvidia just reported its numbers for the quarter ended in April, which is its first quarter of its fiscal 2025 year, and the numbers were stellar as expected. And inside of that commentary, Kress revealed the actual revenues for its Compute and Networking Groups as distinct from each other and also distinct from its Graphics group.

The actual data for Q1 and Q4 of fiscal 2024 and Q1 of fiscal 2025 shows that the compute business is perhaps a bit stronger than many had expected and the networking business is a bit weaker. But both are clearly strong, and will continue to strengthen as fiscal 2025 rolls on. The generative AI market is growing so fast that even with intense competition there will be no way to blunt the market momentum of the CUDA platform that Nvidia has created over the past two decades and that has an incredible advantage over alternatives in HPC and AI.

But, as we have said before, we think that we are experiencing peak Nvidia right now, and maybe the party will continue out into fiscal 2026. But eventually, competition will come and the generative AI hype and hope will settle down and AMD, Intel, the Arm collective, and others will get their share of this market. Until then, this is Nvidia’s time to make hay while the grass is tall and the sun is bright,

And boy, is Nvidia ever making hay in the datacenter.

Nvidia has two different and almost identical ways of breaking down its datacenter business.

Some compute and networking products are sold outside of the datacenter, but not very much, and some products sold into the datacenter are based on gaming cards, so the Datacenter division has slightly different revenues from the Compute and Networking group.

In Q1, to be precise, the Datacenter division had $22.56 billion in sales, up by 5.3X year on year and up 22.6 percent sequentially. In a call with Wall Street analysts, Kress said that somewhere around the mid-40 percent of the companies Datacenter division revenues came from cloud builders, and we reckon it is about 46 percent and that works out to $10.38 billion, a factor of 10X higher than the year ago period by our model. That means the remaining $12.18 billion in datacenter product sales went to hyperscalers (like Meta Platforms), HPC centers, enterprises, and other organizations, which was only up by a factor of 3.8X. (See what we mean about the normalizing of multiples that are just not common for most companies in the five hundred year history of companies?)

The Compute and Networking group lumps together all revenues that are not from Graphics products used in PCs and workstations. In Q1, Compute and Networking comprised $22.68 billion in revenues, up by a factor of 5.1X year on year and up 26.7 percent sequentially from Q4 2024 ended in January. For a short time, Nvidia provided operating income for its groups, but has not done this for a while.

In its financial report, Nvidia said that sales of datacenter compute products, mostly “Hopper” GPUs and their related platform components, rose by 5.8X to $19.39 billion in fiscal Q1, which was also up 28.7 percent sequentially from Q1 in the prior fiscal year. This is the kind of growth that a company is lucky to get on an annual basis if it is wildly successful.

For networking products, revenues rose by a mere 2.4X to $3.17 billion, but were down 4.8 percent sequentially as supply of InfiniBand products could not meet demand and the ramp of the Spectrum X Ethernet products had not yet hit appreciable volumes.

Our model indicates that InfiniBand sales were up 2.7X to $2.71 billion in Q1 2025, but down 5 percent sequentially, and comprised 85.5 percent of networking sales. Ethernet and NVSwitch sales made up the remaining $459 million in networking sales, up by a factor of 2.14X year on year but down 3.6 percent sequentially.

Nvidia is fully embracing Ethernet in the datacenter with Spectrum X, and as we have pointed out before, it has not choice because the hyperscalers and cloud builders now want it and most enterprises are absolutely allergic to InfiniBand. They want one network, and it is Ethernet. And thus, Ethernet switching from all of the key vendors is going to become more of a fabric.

“Spectrum-X is ramping in volume with multiple customers, including a massive 100,000 GPU cluster,” Kress said on the Wall Street call. “Spectrum-X opens a brand-new market to Nvidia networking and enables Ethernet only data centers to accommodate large-scale AI. We expect Spectrum-X to jump to a multibillion-dollar product line within a year.”

What Nvidia does not talk about is how the adoption of Ethernet will affect sales of InfiniBand, but it obviously will have a cannibalizing effect. How much remains to be seen.

In the meantime, Nvidia splurged $7.8 billion in the quarter on share repurchases (not just as an investment but as a means of giving shares as part of compensation packages) and dividends in the quarter, and on June 10 it will do a 10 to 1 stock split that will put its shares closer to the $100 mark that is a comfortable number for institutional and individual investors, which will help boost Nvidia’s shares even further. But Nvidia’s enormous success as it rolls through fiscal 2025 and into fiscal 2026 is really what will send Nvidia’s share price even higher. The projections are for sales of $28 billion, plus or minus 2 percent, for fiscal Q2, and we think Nvidia will easily break $100 billion in sales this year. As does anyone else who can plot four dots on a line.

This ride is not over yet. But it is the exciting part, for sure.

Nvidia co-founder and chief executive officer Jensen Huang laid out the landscape for everyone as he ended the call, and we will let him do the talking:

“We have a rich ecosystem of customers and partners who are going to announce taking our entire AI factory architecture to market. And so for companies that want the ultimate performance, we have InfiniBand computing fabric. InfiniBand is a computing fabric, Ethernet is a network. And InfiniBand, over the years, started out as a computing fabric, became a better and better network. Ethernet is a network and with Spectrum-X, we’re going to make it a much better computing fabric. And we’re committed – fully committed – to all three links. NVLink computing fabric for single computing domain to InfiniBand computing fabric to Ethernet networking computing fabric. And so we’re going to take all three of them forward at a very fast clip. And so you’re going to see new switches coming, new NICs coming, new capability, new software stacks that run on all three of them. New CPUs, new GPUs, new networking NICs, new switches – a mound of chips that are coming. And the beautiful thing is all of it runs CUDA and all of it runs our entire software stack. So you invest today on our software stack, without doing anything at all, it’s just going to get faster and faster and faster and faster. And if you invest in our architecture today, without doing anything, it will go to more and more clouds and more and more data centers and everything just runs. And so I think the pace of innovation that we’re bringing will drive up the capability, on the one hand, and drive down the TCO on the other hand. And so we should be able to scale out with the Nvidia architecture for this new era of computing and start this new industrial revolution where we manufacture not just software anymore, but we manufacture artificial intelligence tokens and we’re going to do that at scale.”

This market is expanding so fast that everyone can play. But for the next few years at least, Nvidia will continue to be the big winner.