What happened

Shares of graphics chip company NVIDIA (NASDAQ:NVDA) surged on Friday following the release of its third-quarter report, which blew past expectations. Both revenue and earnings came in well ahead of estimates, driven by the strength of its Pascal graphics cards, and the company's guidance was far better than expected. At 10:45 a.m. EST, the stock was up about 24%.

So what

NVIDIA reported third-quarter revenue of $2 billion, up 54% year over year and a whopping $310 million higher than the average analyst estimate. The main driver was NVIDIA's gaming products, which generated $1.24 billion of revenue, up 63% year over year. NVIDIA's Pascal graphics cards have been a major success, aided by a lack of competition at the high end of the market from Advanced Micro Devices (NASDAQ:AMD).

NVIDIA's other segments produced growth as well. Professional product revenue grew 9% to $207 million, data center revenue grew 193% to $240 million, and automotive revenue grew 61% to $127 million. Gaming still accounts for the bulk of NVIDIA's sales, but the company is rapidly diversifying beyond that market.

Non-GAAP EPS came in at $0.94, up 104% year over year and $0.37 higher than analyst expectations. Non-GAAP gross margin improved by 270 basis points year over year to 59.2%, while non-GAAP operating margin jumped to 35.3%, up from 23.6% during the prior-year period. Non-GAAP operating expenses increased by just 11% year over year, facilitating the massive earnings increase.

NVIDIA's fourth-quarter guidance didn't disappoint. The company expects to produce revenue of $2.1 billion, plus or minus 2%, with a non-GAAP gross margin of 59.2%. Analysts were expecting revenue guidance of just $1.69 billion. The company also announced that it plans to return a total of $1 billion to shareholders through buybacks and dividends in fiscal 2017, and $1.25 billion in fiscal 2018.

Now what

Despite AMD launching its anticipated Polaris graphics cards at the end of the second quarter, NVIDIA's gaming business is only getting stronger. The GTX 1060 launched in July, followed by the GTX 1050 and GTX 1050 Ti in October. Both challenge AMD in the mainstream portion of the market, and by all indications they have been successful for NVIDIA.

The data center segment nearly tripled its revenue, astonishing performance that suggests that NVIDIA's intense focus on deep learning is paying off. The auto segment also posted impressive results, with the business buoyed by recent news that Tesla had adopted NVIDIA's DRIVE PX 2 platform for all of its cars going forward.

NVIDIA's results continue to impress, and the company showed no signs of slowing down during the third quarter. A couple of post-earnings analyst upgrades have pushed price targets for the stock up to $95, and investors are doing their part driving the stock price higher.