Nvidia investors are already bracing for weak second-quarter results after the stock market closed today, but an Aug. 8 announcement that sales for the period would be lower than May estimates didn’t necessarily include all the bad news about the reduced demand for cryptocurrency miners.
The company said sales would be about $6.7 billion, 17% lower than a May forecast, mainly due to lower demand for its graphics chips from computer manufacturers, gaming hardware, with “macroeconomic headwinds” as the probable cause.
However, the announcement did not directly address 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 demand for miners, there is a big change afoot that it is aware of.
Next month, Ethereum, the blockchain underlying the second-largest cryptocurrency by market capitalization, will see 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, who are currently responsible for generating new coins and maintaining the network, will not only have a greatly reduced need for GPUs, but will also likely try to sell them, clogging the market and driving prices below. come under pressure.
Ethereum miners have extensively used Nvidia’s flagship gaming GPUs to mine ether, putting pressure on the company to meet the demands of gamers and prompting Nvidia to launch a specialized line of ethereum processors last year. has faded. According to Nvidia’s latest quarterly report, CMPs accounted for “an insignificant amount” of revenue in the first quarter, down from $155 million a year earlier.
In announcing its second quarter results, Nvidia said gaming revenues accounted for $2.04 billion in revenue, 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 the company’s expectations, but still a record and up 61% from the 2021 quarter.
“Clearly there has been some impact from both the decline in crypto demand and Ethereum’s move to proof-of-stake and these factors, more than in-game changes, are the reason for their lower expectations for gaming -GPUs in the July quarter,” said Matt Bryson, senior vice president of equity research at Wedbush. key questions prior to the call for profit.”
He thinks the company has “fixed most of the crypto bubble distortion”, estimating that Ethereum miners may have been responsible for 20-25% of Nvidia’s gaming revenues, but also that “sales may be slightly ahead of another quarter.” could decline before it stabilized”. .” Bryson reiterated his “neutral” rating for the stock with a price target of $190, citing “open questions about forward demand.”
Fortunes have quickly turned for the Santa Clara, California-based giant and other chipmakers in recent months as rising inventories collide with falling demand. Micron Technology, Intel and Advanced Micro Devices warned of declining export orders. Citigroup recently said it “expects the worst semiconductor recession in at least a decade and possibly since 2001, given expectations 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 about 14 times future profits. The Philadelphia Stock Exchange’s semiconductor index is valued approximately 16 times.