Nvidia, the computer gaming chip manufacturer, has seen its shares tumble following the announcement that it was revising down its Q4 2018 revenue target by $500 million, as a “crypto hangover” dramatically impacted sales. Nvidia enjoyed a windfall in 2017 from crypto mining, but the bear market killed all enthusiasm and sales have dropped back to previous levels. Adding to this is the second-hand stock that is now being sold by ex-miners, which is heavily impacting inventory levels.
Nvidia Caught Cold
Nvidia GPU cards were the product of choice for many amateur miners in 2017, who began buying multiple cards in the hope of capitalizing on the buoyant state of the market as the year progressed. By early 2018 high-end cards were selling out at most online retailers and were commanding vastly inflated prices on second-hand sites. Revenues were therefore artificially propped up off the back of the boom, and as early as April 2018 analysts were predicting that an emerging downturn in the crypto markets would impact their Q1-Q4 performance, which it did.
The sudden surge in demand for their products understandably caught them cold, with Nvidia and AMD increasing inventory levels as the peak hit. Unfortunately, by the time many of these fresh stocks hit the shelves the demand was starting to wane. Regular gamers were not there to pick up the pieces, with some having been alienated by their inability to buy new cards for their originally intended purpose.
Playing the Blame Game
Some investors have sought to blame Nvidia’s management for the way the cryptocurrency mining boom was handled. But, seeing as many so-called crypto experts were wrong about what 2018 would bring, it’s hard to see how Nvidia’s management could have done much better in such unfamiliar territory. In many ways the chip makers were in an impossible position – had they not made any moves to try and capitalize on the boom they would have been criticized by those same shareholders.
Back in November 2017, CEO Jensen Huang was bullish on the long term prospect of cryptocurrencies, but a year later he had revised his viewpoint, saying, “Whereas we had previously anticipated cryptocurrency to be meaningful for the year, we are now projecting no contributions going forward.” It’s fair to say he’s not the only thinking that.