(Reuters) - Nvidia Corp on Thursday said new high-end graphics chips for video gamers was bringing its core business back to “normalized” levels and raising profitability, as the company posted quarterly results ahead of Wall Street targets, sending shares up 5% in extended trading.

FILE PHOTO: The logo of Nvidia Corporation is seen during the annual Computex computer exhibition in Taipei, Taiwan May 30, 2017. REUTERS/Tyrone Siu/File Photo

Revenue fell 17% in the fiscal second quarter ended July 28 and net income fell by half from a year earlier, but results improved from the previous three months.

Chief Executive Jensen Huang said gaming laptops able to handle sophisticated games and artificial intelligence models able to handle real-time chat bots were driving demand. The new video game chips use so-called ray tracing technology, which creates pictures by calculating how light hits objects, and students returning to school are buying laptops with the high-end silicon.

“Essentially our business is normalized,” Chief Financial Officer Colette Kress said, forecasting improving profit margins due to sales of the high-end gaming chips.

The previous fiscal year set a sales record but came to what Huang at the time called a “disappointing finish” due to a slowdown in China and a bust in the market for crypto mining chips.

The results come against the backdrop of a slowing industry, with research firm Gartner forecasting a 9.6% drop in global semiconductor revenue in 2019. U.S.-China trade tensions, including tariffs on some products, are pressuring chipmakers.

The graphics chip maker also said it would resume share buybacks after completing the acquisition of networking products maker Mellanox this year.

Nvidia is known for its graphics chips that power video games, but it has developed other markets including artificial intelligence, self-driving cars and data centers.

Total revenue in the second quarter fell 17% to $2.58 billion but topped Wall Street targets of $2.55 billion, according to IBES data from Refinitiv. Revenue was up 16% from the previous quarter.

Revenue in the video gaming business fell 27% to $1.31 billion and beat analysts’ estimate of $1.28 billion, based on an average of five analysts. Sales at the automotive unit rose 30% to $209 million in the quarter. Analysts expected $175 million.

Data center revenue, which has been an area of concern, fell 14% to $655 million, just behind the $671 million consensus.

The company said it expects third-quarter revenue of $2.9 billion, plus or minus 2%. Analysts on average were expecting revenue of $2.97 billion, according to IBES data from Refinitiv.

The third-quarter revenue outlook set on Thursday was a touch behind expectations, but “somewhat better than feared in the current macro environment” analyst Kinngai Chan of Summit Insights Group said in an email. Quarter-on-quarter growth in gaming and autos gave investors some comfort about the medium to long term, Chan said.

It reported second-quarter adjusted gross margin of 60.1%, above expectations of 59.5%. It forecast third-quarter margin of 62.5%, plus or minus 50 basis points, versus expectations of 60.4%, according to IBES.

Nvidia’s net income fell 50% to $552 million, or 90 cents per share, in the fiscal second-quarter. Excluding items, it earned $1.24 per share, ahead of expectations of $1.15.