Crypto

Nvidia Warning Left Room For One More Crypto Game

Nvidia investors are already braced for weak second-quarter results after the close of trading today, but a Pre-announcement of August 8 that sales for the period would be lower than he had estimated in May did not necessarily contain all the bad news about reduced demand from cryptocurrency miners.

The company said revenue would be around $6.7 billion, 17% lower than a May forecast, mainly due to lower demand for its graphics chips from computer manufacturers. gaming hardware, citing “macroeconomic headwinds” as a likely cause.

The announcement, however, did not directly address the demand for its graphics processing units (GPUs) by cryptocurrency miners. While the company said in recent filings with the U.S. Securities and Exchange Commission that there are too many variables to accurately predict miner demand, there is a big change coming that it is aware.

Next month, Ethereum, the blockchain that underpins the second-largest cryptocurrency by market capitalization, is set to undergo perhaps the most significant change in its seven-year history: a shift to a secure network model. called proof of stake. As a result, miners, currently responsible for generating new coins and maintaining the network, will not only have a greatly reduced need for GPUs, but will likely seek to sell them, clogging the market and putting pressure on prices. .

Ethereum miners have used Nvidia’s flagship gaming GPUs extensively to mine ether, putting pressure on the company’s ability to keep up with gamer demands and prompting Nvidia to launch a specialized line of ethereum processors. cryptocurrency mining (CMP) last year, but interest in the product has faded. CMPs accounted for “an insignificant amount” of first-quarter revenue, down from $155 million a year earlier, according to Nvidia’s latest quarterly report.

In its pre-announcement of second-quarter results, Nvidia said gaming revenue accounted for $2.04 billion in sales, down 33% from a year earlier and 44% from the first quarter, while the data center segment was impacted by supply chain disruptions, with preliminary revenues of $3.81 billion, making it the company’s largest segment. That’s below company expectations, but still a record and up 61% from the 2021 quarter.

“Clearly there has been some impact from both the drop in demand for crypto and Ethereum’s move to proof-of-stake and these factors, more than in-game changes, are the reason for their lower expectation for gaming GPUs in the July quarter,” said Matt Bryson, senior vice president of equity research at Wedbush. “Whether the July decline fully explains these changes or if there is even more room for sales to decline is one of the key questions ahead of the earnings call.”

He thinks the company “solved most of the crypto bubble distortion”, estimating that Ethereum miners could have been responsible for 20-25% of Nvidia’s gaming revenue, but also that “sales could dip slightly for one more quarter before leveling off.” .” Bryson reiterated his “neutral” rating for the stock with a price target of $190, citing “outstanding questions on forward demand.”

Fortunes have quickly reversed for the Santa Clara, Calif.-based giant and other chipmakers in recent months as rising inventories collide with falling demand. Micron Technology, Intel and Advanced Micro Devices warned of falling export orders. Citigroup recently said it expects “the worst semiconductor recession in at least a decade, and possibly since 2001, given the expectation of a recession and rising inventories.” .

Despite the sell-off warning, NVDA is currently priced at 35 times the company’s projected 12-month earnings, well above its competitors. Intel is trading around 14 times forward earnings. The Philadelphia Stock Exchange’s semiconductor index is valued at around 16 times.

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