Several reports over the past week have suggested that the stock price of Nvidia has dropped due to a drop in demand for crypto mining.
Fool.com’s report, for instance, read:
NVIDIA’s revenue growth is expected to drop into the single digits this quarter. The reason: weak demand for graphics cards. Cryptocurrency mining was a key catalyst for graphics card sales and pricing.
However, as many analysts have suggested, Nvidia’s decline in stock price and revenues is likely not related to crypto or the performance of the digital asset market.
Already Priced in During 3rd Quarter
In August, Nvidia CFO Colette Kress told its investors to not expect any contribution from its crypto venture, in a quarter three earnings call.
At the time, the CFO said:
We believe we’ve reached a normal period as we’re looking forward to essentially no cryptocurrency as we move forward. Our revenue outlook had anticipated cryptocurrency-specific products declining to approximately $100 million, while actual crypto-specific product revenue was $18 million, and we now expect a negligible contribution going forward.
When the executive released the statement in regard to the struggle of the company’s cryptocurrency mining equipment manufacturing business, the stock price of Nvidia fell by over five percent during a period in which stocks in U.S. markets were still rising at a rapid rate.
Nvidia stock had a disastrous 2018, but it wasn’t the fault of the crypto mining industry.
Even in November, after Kress first stated that the cryptocurrency mining-focused GPUs the firm manufactured weren’t appealing to the mainstream, analysts including Jim Cramer said that the stock price of Nvidia was likely impacted by increasing competition in the gaming chip space with the rise of AMD.
Nvidia still makes the best graphics chips, which have become more powerful than traditional microprocessors. It still has a lead over the competition in a lot of uses, although you could argue that AMD’s catching up to them in the data center while Intel rivals them in self-driving vehicles. I think Nvidia made an honest forecasting mistake, although given that some of us saw it coming, it was definitely an avoidable mistake.
As seen in the drop of the hash rate of Bitcoin, Ethereum, and other major crypto assets, the demand for crypto mining has clearly declined. But, cryptocurrency-mining GPUs of Nvidia were never considered one of the core pillars of the firm’s business, and it is unlikely that it had a major impact on the mid-term performance of the company.
Big Companies Left Out
This week, GMO, a Japanese internet conglomerate, called an end to its mining business after losing over $300 million.
Nvidia, GMO, and several large-scale conglomerates tried to compete against Bitmain and existing players in the global cryptocurrency mining sector, possibly considering them as easy competition.
To operate a long-lasting business within an industry like crypto that is still at its infancy, businesses have to be ready to record large losses in the same range as gains, because the volatility of the assets the industry supports can rise to extreme levels.
Most of the companies that entered the cryptocurrency mining space in early 2018 did not consider the possibility of a bear market and a mid-term downturn and demonstrated big losses as a consequence.
But, although Nvidia lost tens of millions of dollars from its cryptocurrency business, percentage-wise, the losses it recorded from its crypto mining venture do not compare with its core business.