Historians have often said that the only people that truly prosper during a gold rush are the ones that sell pick axes, panning supplies, and other paraphernalia to the would-be miners. Fast forward to crypto mining today, and you have a replay of this maxim before our very eyes – Nvidia (NASDAQ:NVDA), a major supplier of the crypto mining industry, has profited greatly, but now is having to endure the sudden sharp decline in mining activities, along with its prospecting customer base.
Nvidia is no small enterprise. Touting nearly 12,000 employees and annual revenues in the $10 billion range, this Taiwan-based chip manufacturer had been the darling of Wall Street since 2016. It had invented a high-speed GPU (“Graphics Processing Unit”) that had revolutionized the Gaming industry, enabled AI to flourish, but really took off when crypto miners needed its fast and efficient technology. Stock prices soared, much the same way as did crypto prices, rising from $26 to $289 by October of last year. Then disaster struck. Prices plummeted to $127. Nvidia was the worst performer in the S&P 500 index during the fourth quarter of 2018. Today, “NVDA” shares rest at $147.
What was the “disaster”?
Per one analyst’s report:
When crypto prices — and the resulting crypto craze — reached their peak earlier this year, Nvidia chips were being wiped clean from store shelves as would-be miners invaded on a space once only popular among PC gamers. A steep decline in prices since then, coupled with a potential shift in Ethereum’s mining rules, and the proliferation of mining-specific computers known as ASICs, has dampened some of Nvidia’s newfound demand for chips.
Nvidia had warned shareholders back in May of last year that demand for its crypto related product line was falling sharply:
We expect crypto-specific revenue to be about one-third of its Q1 level.
Nvidia’s fiscal year ends on January 31. Its April 30 financial results were formidable, and even its October 31 profits were only $0.10 a share off from an expected figure of $1.92, but the stock was punished. Forward guidance suggested a decline in quarterly revenue from $3.1 billion to $2.7 billion for its final fiscal quarter.
To make matters worse, the firm now faces a class action suit after a 54% drop in share value. The complaint alleges that:
The Company made false and misleading statements to the market. [Nvidia] touted its ability to monitor the cryptocurrency market and make rapid changes to its business as necessary. Any drop off in demand for its GPUs amongst cryptocurrency miners would not negatively impact the Company’s business because of strong demand for GPUs from the gaming market.
News today is that a financial analyst has studied the last set of financial data released by Nvidia and come to the conclusion that the company is deliberately understating its crypto related revenues to the tune of $1.35 billion. Mitch Steves, an analyst with RBC Capital Markets, arrived at his figures by reviewing competitive results from AMD, its largest rival with a 25% market share, and the hash rates necessary to perform mining operations over the period. Nvidia has not commented on these findings.
Why would Nvidia feel the need to understate the impact of the mining meltdown on its revenue base? Last November, the company had down played the potential effects. CEO and founder, Jensen Huang, had said:
Near-term results reflect excess channel inventory post the cryptocurrency boom, which will be corrected.
TechSpot, a tech news website that follows this space, noted that:
Steep falls [in stock] are a strong incentive for Nvidia to mask large fluctuations in revenue.
Nvidia’s fiscal year just ended last week. Its soon-to-be-released annual report should be a quite interesting read.