Investors in graphics chip maker
may soon wake up rudely after a Chinese government crackdown on cryptocurrency mining.
Since Beijing moved earlier this year In order to curb major cryptocurrency mining activity, the Chinese market has been flooded with cheap, used graphics cards, made by Nvidia (ticker: NVDA), that were once used to produce Ethereum, New Street Research analyst Pierre Ferragu wrote in Thursday. a note. Market saturation and declining mining activity in general prompted the analyst to warn investors about Nvidia stocks.
Ferragu says a large, rapid slowdown in cryptocurrency activity and an oversupply of Nvidia’s powerful chips could weigh on the company’s revenues. Cryptocurrency has become an increasingly important part of the company’s operations in recent quarters. According to Ferragu’s research, cryptocurrency revenue in the first quarter could reach $500 million to $1 billion, or roughly 10% to 20% of total revenue of $5.7 billion.
Finance Chief Colette Kress recently said the company received about $150 million in first-quarter revenue from cryptocurrency-specific chips it designed. Nvidia’s graphics chips were originally intended for video games, but gamers couldn’t get their hands on them, so the company produced a cryptocurrency-specific version.
Kress predicted $400 million in revenue in the second quarter of crypto mining chips, but how much of the total revenue is linked to crypto mining is not clear. Miners will continue to use the company’s regular graphics processors, although Nvidia has reduced the mining capacity of those cards. Nvidia doesn’t have an accurate way of figuring out how many of its chips are used for mining versus video games, Kress said.
Ferragu’s concern is the result of recent history. In 2018, a crash in cryptocurrency prices – including for Bitcoin and Ethereum – had a significant impact on Nvidia. Miners had gobbled up their cards, and the drop in prices prompted miners to unload them into the used equipment market.
Nvidia’s sales were a hit for four quarters in a row, with sales falling a whopping 31%. Ferragu noted that the shares retreated more than 50% in the second half of 2018. He called the current situation similar, but said it was not clear when the stock could fall.
Nvidia’s fundamentals remain strong, Ferragu said, but he urged investors to wait for a pullback before buying the shares. He rates Nvidia at neutral with a target of $143 for the price.
Write to Max A. Cherney at firstname.lastname@example.org