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Here's Why Crypto Crash is No Big Deal for NVIDIA (NVDA)

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NVIDIA NVDA has been one of the top-performing technology stocks so far in 2021, thanks to its powerful Graphic Processor Units (GPUs), which have witnessed strong demand from gamers, datacenter operators and particularly, cryptocurrency miners.

The company’s GeForce GPUs, which are originally manufactured for gamers, have been in such high demand among miners that it was forced to launch Cryptocurrency Mining Processor (CMP), a separate product line for professional miners, in first-quarter fiscal 2021.

Moreover, NVIDIA reduced Ethereum mining capabilities of its newly-manufactured GeForce RTX 3080, RTX 3070, and RTX 3060 Ti graphics cards by half. These also carry a low hash rate or LHR identifier.

Impact of Bitcoin Slump Could be Negligible

The cryptocurrency market is currently in panic mode as the most popular digital currency, bitcoin, is down almost 49% from the year’s high of $64,829.14 hit on Apr 14, per coindesk.com data.

Concerns over huge power consumption in mining bitcoin has dragged down its prices in recent times. Per a CNBC report, which cited Cambridge Bitcoin Electricity Consumption Index, bitcoin mining uses more energy than what is consumed by countries such as Sweden and Malaysia.

Tesla’s TSLA CEO Elon Musk, who had been a frontrunner in endorsing bitcoin, criticized the usage of fossil fuel to mine bitcoins. The EV giant, which started accepting bitcoins as payment for its cars in March, stopped in May, citing huge power consumption concerns. It is expected to resume bitcoin transaction only if 50% of the total energy required for mining the cryptocurrency comes from renewable sources.

Apart from power consumption concerns, the cryptocurrency market has been hit hard by ban in China as well as a more hawkish tone of the U.S. Federal Reserve, which is now expected to make its first interest-rate hike in 2023 instead of 2024. (Read More: Technology Sector Gains Amid Fed's Rate Hike Signal: 6 Picks)

NVIDIA’s portfolio strength makes it resilient to the crypto crash. Though the lower demand for GPUs from crypto miners could slightly mar the revenue growth, strong demand for GPUs in both gaming and data center (on a combined basis accounts for 85% of revenues) is expected to keep the momentum kicking in the near term.

Strong Non-Crypto Demand for GPUs

NVIDIA is riding on a strong uptick in PC gamers, esports players and higher spending on gaming GPUs. Strong demand for GeForce GPUs as well as in game-console SOCs drove first-quarter fiscal 2022 gaming sales, which surged 106% year over year and 11% sequentially.

Moreover, NVIDIA’s GeForce NOW cloud gaming platform passed 10 million registered numbers in fiscal first quarter. The platform offers nearly 1,000 PC games from more than 300 publishers, including 80 of the most popular free to play games.

Additionally, robust hyperscale demand has been a tailwind for NVIDIA’s data center business, which reported revenue growth 79% year over year and 8% quarter over quarter in the fiscal first quarter.

NVDA Should Keep Soaring

Since Apr 14, NVIDIA has returned 22% versus the Zacks Semiconductor- General industry’s return of 4.6%. The stock has returned 42.8% year to date.

Year-to-Date Performance

Zacks Investment Research
Zacks Investment Research

Image Source: Zacks Investment Research

Notably, for the second quarter of fiscal 2022, NVIDIA anticipates revenues of $6.3 billion (+/-2%). The Zacks Consensus Estimate for revenues is currently pegged at $6.31 billion, suggesting 63.3% growth from the figure reported in the year-ago quarter.

Additionally, the consensus mark for earnings stands at $4.11 per share, up 25.3% over the past 30 days and indicating 88.5% growth from the figure reported in the year-ago quarter.

Currently, NVIDIA has a Zacks Rank #2 (Buy). So, the stock is expected to perform better than the broader market in the near term. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Bottom Line

NVIDIA’s robust portfolio ensures that the company is not dependent on any single market for demand. Even if the demand for GPUs remains low from the crypto market, the company is well-poised to benefit from strong demand for its GPUs in gaming and data center.

Moreover, NVIDIA’s GPUs are rapidly benefiting from the proliferation of AI. By applying its GPUs in AI models, the company is expanding its base in the other untapped markets like automotive, healthcare and manufacturing, which will enhance its prospects.

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