Markets eye Nvidia earnings for insight into tech sector

Nvidia's earnings release may shed light on the business segment that is growing faster than its chips - networking. The company generated nearly $15 billion from its networking operation last quarter, a significant increase from $3 billion per quarter two years ago. Analysts expect this figure to reach $17 billion when Nvidia reports its next earnings.

While compute remains the dominant part of Nvidia's Data Center business, networking has been expanding at a much faster rate, up nearly 200% year over year in the last quarter compared to 77% for compute. However, the growth rate for networking is slowing down, with analysts predicting a roughly 134% increase in the upcoming quarter, still ahead of compute's expected 100% growth.

As AI data centers connect thousands of accelerators, moving data among processors becomes a growing challenge, pushing AI companies deeper into networking, memory, storage, and other infrastructure. Nvidia's strategy is described as investing in the bottlenecks that are the AI infrastructure. The company sells products like Spectrum-X for high-speed Ethernet connections, InfiniBand, and NVLink for quick data transfer between processors, and recently introduced NVLink Fusion to allow custom processors to be plugged into Nvidia's broader system of high-speed connections.

Despite the overall decline in the semiconductor industry, Nvidia's stock has remained relatively stable, unlike most other chip companies. This resilience can be attributed to the rapid growth of its networking business, which has become a significant part of Data Center revenue, forming roughly one-fifth of it. Investors are closely watching Nvidia's comments on networking demand, custom silicon, and the extent of the AI system Nvidia can capture beyond the GPU.