Meteoric Bitcoin Rally Won’t Rescue Nvidia’s Flailing Stock

By CCN: Nvidia previously blamed its negative earnings report on “crypto winter,” the vaunted extended bear market which Bitcoin appears to have finally exited. The incredible rally of the past couple weeks means many industries related to crypto will see increased demand and valuation – everything from mining to software development will be in fashion again.

However, NVDA shareholders should not count on another cryptocurrency boom to rescue the ailing chipmaker.

Analysts Worry about Nvidia as Stock Implodes

nvidia stock price chart

Nvidia stock cratered voer the past year, and it’s upcoming earnings doesn’t look likely to improve the situation. | Source: Yahoo Finance

Nvidia stock continues to teeter on the brink, and the company’s first-quarter earnings report isn’t looking very healthy, according to Wall Street analysts, who note that the quarter saw little recovery in demand for the company’s products. The report is set to come out today. Many believe the company’s main weakness lies in its data center division.

Nvidia just ended its first quarter of the fiscal year 2020. Previously, as sales exploded and then declined, due in part to the cycles of crypto, CEO Jensen Huang cited increased data center business as evidence that the company had much more to offer than gaming chips. This confidence may be undermined today as the company is likely to report a decline in that division, as well.

Nvidia Revenues Down 32% & a Resurgent Crypto Market Won’t Help

ethereum cryptocurrency mining

Nvidia shareholders shouldn’t count on GPU-intensive cryptocurrency mining to help the ailing chipmaker regain its footing. | Source: Shutterstock

First-quarter revenue is expected to be down about 32% from last year. The seismic boom of the crypto market increased demand in no uncertain terms: units would fly off the shelves. The increased demand mainly came from cryptocurrencies such as Ethereum and Monero, where GPU mining is still the dominant mode. Bitcoin and other SHA256 blockchains, as well as Scrypt-based chains like Litecoin, favor dedicated hardware known as ASIC miners.

Nvidia previously promised that performance in FY 2020 would be either stagnant or moderately bad. Now it’s looking like things may be worse than expected. An analyst with Stifel told Bloomberg:

“We are cautious on Nvidia shares in front of its earnings report. We believe the company will be challenged to meet its full year guidance for revenue.”

The report won’t come in until just before the market closes today, but it’s currently unclear what impact a returning crypto bull market might have on the firm. “Crypto winter” had a dire effect on most aspects of the mining industry, with a major Taiwanese chip supplier blaming its troubles on lack of demand from crypto mining giant Bitmain. Bitmain itself was forced to downsize and, amid other problems, let its application for an initial public offering expire.

The booms and busts of cryptocurrency are more extreme than most industries and therefore much harder for traditionally-structured companies to endure. Human nature is to expect the present situation to continue, and our institutions plan accordingly.

Is There A Future for GPUs in Crypto?

bitcoin price chart

Nvidia shouldn’t count on a resurgent cryptocurrency market to reignite demand for its GPUs. | Source: Yahoo Finance

The rug was pulled from underneath a highly speculative crypto market near the end of 2017, and throughout last year a recovery became less and less possible. The final blows came in near the end of the year, which saw a 50% tumble in the price of Bitcoin and much worse freefalls for other major cryptocurrencies.

It’s entirely possible that Nvidia stock finds itself in the bargain bin in the coming weeks, as analysts downgrade their confidence in the symbol. An extreme pick-up might come briefly later on, fueled by a resurgence in Ethereum.

Unfortunately, Ethereum will soon be moving to a pure proof-of-stake model, which means that demand for mining equipment on that network will aggressively decline.

Several other networks still use proof-of-work. These will generate moderate demand for GPUs, but hardly any of them are even in the top 20 by market capitalization, meaning that demand should remain limited.