Nvidia continued the beat and raise in the second quarter, similar to the past few quarters. Both second-quarter results and third-quarter outlook beat expectations modestly by 3-4 percentage points. While the magnitude of the beat is much smaller than the past two quarters, the underlying drivers are much more encouraging. The data center business, instead of Crypto, became the main driver of the revenue upside.

One of the main concerns from investors was the sustainability of Nvidia's strong gaming business over the past couple of quarters. The second-quarter result should be able to put those concerns at rest.

Because gamers and crypto miners usually buy the same graphic cards from the same channel, it is hard to distinguish the actual demand of these two different end markets, even for Nvidia itself. When cryptocurrency price drops, not only will miners stop buying new graphic cards and create a demand shortfall, they often start selling the same cards in the secondary market and create a double whammy for Nvidia's gaming business. The company is well aware of the challenges and made an effort to address the issue in the past few months. Nvidia introduced a CMP product line designed explicitly for miners that don't have video output to better separate the demand from gamers and miners. In the second quarter, Nvidia also introduced the LHR (low hash rate) version of the gaming cards, limiting the hash rate to make them much less attractive for miners.

The crypto-specific CMP product contributed $266 million of revenue in the second quarter, more than 30% lower than management expected a few months ago, indicated soft demand from crypto miners. However, the core gaming business didn't show any signs of slowing down. The 11% sequential growth is a slight acceleration over the past two quarters. More than 80% of the new Ampere GPU shipped are the LHR version, further demonstrating gamers' healthy and robust demand.

More importantly, the third-quarter revenue guidance included a minimal contribution from Crypto but is still $300 million above expectation. The majority of the sequential growth is coming from the data center business this time. The $2.4 billion revenue in the second quarter is a new record for Nvidia, and the 16% sequential growth is also the fastest since the Mellanox acquisition. Management expects the data center business to keep accelerating in the second half, with third-quarter revenue likely in the $2.8 billion range, a 40% contribution to total revenue.