NVIDIA Corporation (NASDAQ:NVDA) shareholders are enjoying another year of solid growth in their holdings. So far in 2021, NVDA stock is up an impressive 56%. However, some investors are looking nervously at what’s happening with cryptocurrencies.
This has been a volatile year, and many cryptocurrencies have crashed. The last time this happened — in 2018 — NVDA stock was hammered as crypto miners stopped buying graphics cards, then flooded the market with used cards as they shut down their mining rigs. Could the same thing happen to NVIDIA in 2021?
NVDA is a “B” rated stock in Portfolio Grader. It’s not perfect, but the company continues to be well-positioned for long-term growth. But investment analysts remain bullish on NVDA stock.
Why the apparent lack of concern over the meltdown in the crypto market? Besides the fact that crypto mining makes up a relatively small percentage of NVIDIA’s revenue, the company took steps this time around to ensure it could profit from crypto mining, while simultaneously shielding itself from fallout should that volatile market stumble once again.
2018, the Year of NVIDIA’s Crypto Hangover
It’s not difficult to see parallels between today and 2018. Back then, NVIDIA had just released its RTX 2000 series graphics cards. Demand was high as gamers clamored for the new cards, which featured real-time raytracing. However, part of the challenge in getting ahold of an NVIDIA graphics card was the competition from cryptocurrency miners. The massive parallel processing power of the graphics cards made them ideal for power crypto-mining rigs.
Cryptocurrencies crashed in 2018. The stock NVIDIA had been churning out to try to meet demand for suddenly piled up in sales channels. Making the situation worse, many crypto miners turned around and sold their used graphics cards to desperate gamers.
The result was a “crypto hangover” that saw NVDA stock plunge in value by nearly 50% in just three months. In a note to investors that November (as it cuts its price target on NVDA stock), Deutsche Bank wrote:
“After many years of near flawless performance, NVDA finally stumbled as the fall-off in crypto demand and the resulting ballooning of inventory impacted its quarter and more severely impacted the guidance.”
2021, the Year NVIDIA Took Measures to Avoid a Repeat
Lesson learned. Crypto mining can be a very lucrative business, but it is volatile. Crypto miners snapping up cards angers core gaming customers. When those miners bail out of the market, selling off their graphics cards can disrupt the market for months. So NVIDIA took measures to prevent a repeat of 2018.
The first measure was a firmware update to its new RTX 3000 series graphics cards that lowers the hash rate. This has no impact on their gaming performance, but cuts their ability to mine cryptocurrencies by half. In addition, NVIDIA released the CMP HX, the company’s first graphics card designed specifically for crypto mining.
This time around, NVIDIA had graphics cards available for crypto miners while minimizing the impact on its core PC-gaming demographic. As the the crypto market slumps, there’s less concern about the sales channel being bogged down with cheap, used graphics cards from retired crypto-mining rigs — the CMP HX is optimized for that purpose and not suitable for gaming.
Bottom Line on NVDA Stock
There is still a risk that high-flying NVDA stock will hit a speed bump because of the cryptocurrency market. At some point, miners are going to stop buying graphics cards for their rigs. That will have a revenue impact. However, this time around NVIDIA should be well protected from having that spill over into its mainstream business.
So if you have been holding off on buying NVDA stock because you’re worried about another 2018-style crypto hangover, that’s not a scenario to be losing sleep over.
On the date of publication, Louis Navellier had a long position in NVDA. Louis Navellier did not have (either directly or indirectly) any other positions in the securities mentioned in this article. The biedexmarkets.com Research Staff member primarily responsible for this article did not hold (either directly or indirectly) any positions in the securities mentioned in this article.
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