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Computer graphics chipmaker Nvidia Corp. saw its stock jump almost 6% in after-hours trading after posting first-quarter results that beat expectations.

But most of those gains were wiped out after the company warned of challenges to its primary gaming and data center businesses.

Nvidia reported earnings before certain costs such as stock compensation of 88 cents per share on revenue of $2.22 billion, down from $3.21 billion a year ago. But that was still better than Wall Street’s forecast of earnings per share of 79 cents on revenue of $2.2 billion.

The performance was even better than it looked, as the challenges Nvidia’s executives described actually made their impact felt in this quarter, too.

For example, Nvidia’s main GPU business saw revenue fall 27%, to $2.02 billion, mainly on a decline in gaming and data center revenue, and also a loss related to cryptocurrency mining processors.

Revenue in Nvidia’s gaming business, which is the main segment of its GPU unit, fell by 39% from a year ago, to just $1.06 billion, though sales rose 11% from the previous quarter. The company said the sequential increase reflects recent growth in sales of gaming GPUs.

That growth is important for Nvidia, because despite its push into new growth areas such as artificial intelligence, data centers and self-driving cars, selling chips that enhance videogame graphics remains its biggest business by far.

“I think China has stabilized,” Nvidia Chief Executive Jensen Huang (pictured) said of one of the company’s biggest markets in a conference call. “The gaming market in China is really vibrant and it continues to be vibrant.”

Nvidia said it expects gaming revenue to top $2.55 billion in the next quarter, ahead of analysts’ expectations of $2.53 billion in revenue.

Data center sales were a disappointment, however, with revenue falling 10% year-over-year to just $634 million. And things there are unlikely to pick up soon, with Nividia Chief Financial Officer Colette Kress warning investors in the call that: “The data center spending pause around the world will likely persist in the second quarter, and visibility remains low.”

Kress further warned of a challenge to Nvidia’s gaming business. “A CPU shortage, while improving, will affect the initial ramp of our laptop business,” she said.

In the wake of those comments, Nvidia’s stock lost much of its post-earnings gains, and at the time of publishing was up just 2%. Update: Shares fell 2.3% Friday on a day when the Nasdaq index on which they trade fell about 1%.

Analyst Patrick Moorhead of Moor Insights & Strategy told SiliconANGLE that the data center blip was only likely to be temporary, however.

“I believe that inference was very strong and the company expects data centers to kick back into buying more training solutions in the back half of the fiscal year,” Moorhead said. “Intel told a very similar story and I think it makes sense.”

A boost in data center sales later in the year is essential for Nvidia if it’s to return to growth, said analyst Holger Mueller of Constellation Research Inc.

“It’s remarkable Nvidia managed to still be profitable and even extend its R&D spend,” Mueller said. “But the key [to future growth] is to convince infrastructure-as-a-service providers to buy more Nvidia machines to run and power their artificial intelligence-based next generation applications.”

That won’t be easy, though, as Nvidia faces a strong challenges from the likes of Amazon Web Services Inc. and Google Cloud, Mueller said.

“Nvidia needs to lobby both developers and company executives to use its hardware and create demand for its architecture demand from the public cloud infrastructure-as-a-service vendors,” he added.

Elsewhere, Nvidia reported revenue of $166 million from its nascent automotive business, and $266 million from its professional visualization business.

The quarter just gone was a busy one for Nvidia despite its challenges. Notably, the company found time to acquire data center networking specialist Mellanox Technologies Ltd. for $6.9 billion. Analysts said that deal was all about boosting Nvidia’s position in the computer graphics, data science and artificial intelligence segments.

“Despite the near-term pause in demand from hyperscale customers, the application of AI continues to accelerate,” Huang said. “We’re excited about our pending acquisition of Mellanox, which will help us drive data center architecture for high-performance computing and AI from the cloud to the edge.”

Nvidia said it expects second quarter revenue of $2.55 billion, plus or minus 2%, which was just above market estimates of $2.54 billion in revenue.

Photo: Nvidia/Flickr