This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.
Like clockwork, Nvidia (NASDAQ: NVDA) delivered another round of explosive growth in its third-quarter earnings report, but investors seemed to be missing the most impressive part of the performance. The company didn't mention it in the earnings call or press release, consigning it instead to the "CFO Commentary" section of its earnings report.
By now, most investors know that the data centre segment is driving Nvidia's growth. While Nvidia's business spans everything from gaming to autonomous vehicles to visualisation tools like the Omniverse, its success in the data centre business, driven by the explosive growth of AI, has stolen the narrative and now makes up the vast majority of Nvidia's revenue.
While overall revenue in the fiscal 2025 third quarter jumped 94% from a year ago to $35.1 billion, growth in the data centre segment was even stronger, climbing 112% from a year ago to $30.8 billion.
However, Nvidia breaks down its data centre revenue into two categories. It brings in revenue from "networking" and "compute." Compute refers to the components that run applications on a server, such as processors and memory chips. Networking includes components like switches and routers that provide the connectivity and the security needed for the applications to run.
AI training and inference are driven by the compute components so it makes sense that compute makes up the bulk of that revenue. Data centre networking revenue in the third quarter grew just 20% year over year to $3.1 billion, while data centre compute revenue was up 132% to $27.6 billion.
The data centre compute figure looks like the best reflection of the underlying growth in Nvidia's business, even with the discrepancy between demand and supply as the company said several times on the earnings call that the business is supply-constrained and it expects those constraints to continue for the next several quarters, especially on the Blackwell platform.
Data centre compute revenue also grew 22% sequentially, above 17% overall sequential growth for the whole company. and 17% sequential growth in the data centre. The chart below shows the performance in data centre compute revenue over the last several quarters.
The data centre compute platform is at the core of Nvidia's AI offering. It accelerates the most compute-intensive workloads, and it includes a wide range of products such as APIs, software development kits (SDKs), its DGX Cloud, which is an AI training-as-a-service platform, and GPUs, DPUs, and AI enterprise software. All of that makes it very difficult to compete with Nvidia and helps explain why the data centre business is growing so fast.
Revenue growth is heating up
The other telling data point in the table above is that while Nvidia's year-over-year revenue growth in the data centre compute segment continued to decelerate, sequential revenue growth, which is arguably a better barometer of growth, accelerated from 17% to 22%, lifting a similar acceleration in overall revenue from 15% to 17%.
Sequential growth of 22% would translate to a 122% year-over-year growth rate if the business grew at that pace over four quarters. Given the launch of the new Blackwell platform and management's commentary about demand outstripping supply for the next several quarters, the company could maintain a growth rate similar to that over the next year.
What's next for Nvidia?
Nvidia stock fell slightly on the earnings report. Investors seemed to think guidance was underwhelming as the company called for year-over-year revenue growth to slow to 70% in the fourth quarter, with the top line reaching $37.5 billion, plus or minus 2%.
However, Nvidia has a long history of topping its guidance, and it looks like a good bet to do so again in the fourth quarter, given the scorching growth from the data centre compute business and locked-in demand for its Blackwell platform.
Don't be surprised to see Nvidia top that forecast again three months from now. The business is on fire. It continues to deliver stellar results, and there's little in the way to slow it down.
This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.
