Updated:

Things are looking up at Nvidia Corp., which easily beat expectations on earnings and revenue in its second quarter thanks to growing demand for its artificial intelligence and graphics chips.

The company reported a profit before certain costs such as stock compensation of $1.24 per diluted share. Revenue topped $2.58 billion for the quarter, down from the $3.12 billion it made one year ago but up sequentially. Wall Street had been looking for earnings of just $1.14 per diluted share on revenue of $2.54 billion.

The results were enough to boost Nvidia’s stock, which rose more than 5% in after-hours trading even though its guidance for the next quarter was lower than expected. Update: By end of day Friday, shares rose more than 7%.

The strong performance was all the more impressive because Nvidia has struggled in recent quarters. Three months ago, although it topped expectations, the company’s stock ended up falling after Chief Executive Officer Jensen Huang (pictured) warned of a slowdown in data center chip sales that might impact revenues. Before that, in January, the company was forced to slash its revenue guidance due to what it said was slow adoption of its RTX architecture for graphics processing units.

The good news is the latter problem is now a distant memory. Nvidia said it has seen growing demand for its RTX platforms, which enable something called “real-time ray tracing,” an advanced technique for rendering computer graphics more realistically. It relies on a machine learning algorithm to trace the path of light sources and shadows, and simulates how these interact with the virtual objects they fall upon in a computer-generated environment.

“Real-time ray tracing is the most important graphics innovation in a decade. Adoption has reached a tipping point, with Nvidia RTX leading the way,” Huang said in a statement.

The growing demand for RTX was reflected in the launch of new GPUs in the last quarter, including the GeForce RTX 2060 Super, GeForce RTX 2070 Super, and GeForce RTX 2080 Super products. Nvidia’s partners meanwhile announced 27 new RTX studio laptops at the recent ACM SIGGRAPH computer graphics technology conference.

“Investors are happy to see traction in ray tracing, in which the company has a time-to-market advantage,” said Patrick Moorhead, an analyst with Moor Insights & Strategy.

Huang said Nvidia also saw more demand for its AI chips, which have recently been setting new records for training and inference times in areas such as image classification, object detection and language understanding.

“Nvidia’s accelerated computing momentum continues to build as the industry races to enable the next frontier in artificial intelligence, conversational AI, as well as autonomous systems like self-driving vehicles and delivery robots,” the CEO added.

The company’s sales in the quarter were some way down from the year ago period, but it saw a marked improvement across the board on a sequential basis. Gaming revenue for example came to $1.31 billion, down 27% from a year ago but up 24% from the last quarter. Data center revenue came to $655 million, down 14% from a year ago but up 4% from the last quarter. Professional Visualization and Automotive revenues also grew compared to the previous quarter, up 4% and 26%, respectively.

Analysts said the results were encouraging and show that Nvidia looks to have turned the corner.

“Nvidia seems to have shaken off the effects of GPU oversupply linked to the cryptocurrency swoon and weakness in hyperscale sales,” Charles King of Pund-IT Inc. told SiliconANGLE. “It’s good to see their clear focus on core gaming technologies and related new innovations.”

Constellation Research Inc. analyst Holger Mueller said the sequential growth shows Nvidia is clearly on the rebound.

“Now it comes now back to Nvidia’s management to fuel the growth and manage expectations,” Mueller said. “But congrats to the Nvidia employees for returning to back-to-back growth quarters.”

Photo: Nvidia/Flickr