Nvidia: What Does the Future Hold after Crypto?

When the crypto boom occurred, Nvidia shares skyrocketed. The demand for mining devices exceeded the supply, and GPU prices were heading up as people bought dozens and thousands of them. Some people even had to wait a long time before they finally got their graphics cards.

However, it was clear that such a high demand could lead to complications moving forward – that is, once the crypto market started to decline. This was a major risk the GPU manufacturer had to face, as once the crypto market went down, people would start selling used GPUs at low prices.

However, it all happened before anyone could expect. The crypto rush ended, and the demand for powerful GPUs declined drastically. In early Q2, Nvidia expected GPU sales to reach $100M, but in fact it came out at just around $18M. The crypto stagnation led to oversupply in Nvidia’s inventories.

We are, however, mostly interested in this issue from the point of view of finance, so what we actually need to do is analyze the company’s revenues during the crypto boom and after it.

Looking at the chart that shows Nvidia earnings over the last three years, one can note that during 2016, earnings grew sharply, if a bit unsteady, while in 2017, the demand was quite stable and very high. In early 2018, the crypto market reached its peak, which also boosted the company’s earnings, but in Q2 they suddenly fell by $90M, mostly due to much lower demand.

Although earnings were 40% higher than in Q2 2017, and EPS went up by 91%, the company’s stock fell 5% the day the report was released, as investors saw the negative difference compared to the previous quarter, and of course understood the reason behind it.

It could just be that those investors who locked in some profit after the crypto boom left, as Nvidia shares recovered the very next day and even continued rising. Thus, the company’s position in the GPU market is still quite stable.

Currently, Nvidia is also increasing its market share in artificial intelligence, where modified GPUs have become the best solution for data center owners. The company also announced the improved GPU architecture that is going to boost sales where computation intensive capacity is required, such as visual effects or automobile manufacturing. Yet, the most revenue still comes from GeForce cards, and the company is doing its best to persuade the potential customers they absolutely need the latest model in order to make their video games much more realistic.

Rumor has it that the GPU stocks are really huge (some assume they are around 1M), so Nvidia’s management had to react sooner or later. Jensen Huang, CEO at Nvidia, said such stock was necessary as the school season would bring more demand for cheap GPUs.

The official version may or may not be true, but the fact is that Nvidia was long ago ready to announce its new model, GeForce 2080, but in fact they lingered, probably waiting for the stock of previously manufactured GPUs to run out. As such, one of Nvidia’s partners from China sent around 300 000 graphical units back, as the demand for mining farms was fading out, so the company had to do something to sell them again. Ironically, it was a natural disaster that helped Nvidia: on June 2, 2018, floods came to Szechuan Province in China, and a lot of mining farms were damaged, some of them being unable to restore. Around 70% of Bitcoin mining is done in China, so there’s no surprise that this flood influenced the demand for mining GPUs greatly. This was probably the reason for Nvidiabeing able to sell out its stock and announce its new next-gen graphics card, GeForce 2080. This GPU is incredible in terms of its features and performance, but the price is also next to unbelievable, namely around $2,000. Whether the company will be able to maintain high sales with such prices is yet unknown.

Currently, however, one can clearly see the company was able to stop being dependent on the crypto market. Sales in Q2 2018 rose by 52% compared to Q2 2017, while revenue from data center solutions jumped 82%, and this was beyond any expectations. In Q3, according to Nvidia, earnings should reach $3,25B.

Technically, Nvidia shares got a very strong boost in early 2015; since then, the price has gone up by 1,400%, mostly backed by the crypto mining hype. The profits were then invested into R&D and technologies, which makes competing against Nvidia a very difficult task.

On D1, there’s a clear uptrend, which is yet slowing down since Feb 2018. Corrections have formed more often, from which we can assume the shares might start range trading between $250 and $300.

By Dmitriy Gurkovskiy, Chief Analyst at RoboMarkets

Disclaimer

Any predictions contained herein are based on the authors’ particular opinion. This analysis shall not be treated as trading advice. RoboForex shall not be held liable for the results of the trades arising from relying upon trading recommendations and reviews contained herein.

Having majored in both Social Psychology and Economics, I went on to continue my education in post graduate. Later I worked as a team lead of a tech and fundamental analysis lab in the Applied System Analysis Research Institute. This helped me to acquire all necessary skills and experience to become a successful trader and analyst, as well as a portfolio manager in an investment company. I'm a pro in the financial field and the author of articles for various international media. I also hold the position of Chief Analyst at RoboMarkets.