Cryptocurrency chill causes mining speculator Nvidia’s stock to plunge

NelsonG · November 16, 2018

The cryptocurrency market is an exciting one, but it’s also unpredictable — and when things go south, they take related businesses with them. Nvidia, a hardware giant that has been riding the cryptocurrency wave, saw its stock price take a double-digit hit as it reported vanishing demand for GPUs specializing in crypto-mining.

It’s been a wild year in the GPU market as there were points when ordinary gamers, who have relied on Nvidia for years for the powerful cards used to play the latest games, found inventory scarce for the company’s latest generation of hardware.

The cards had been, and continued to be for some time, bought up by cryptocurrency mining operations, all striving to get a leg up on one another. Consumer-grade GPUs are excellent candidates for putting together low-cost, high-performance clusters that excel in solving the type of problems posed in the likes of Bitcoin mining. The cards were essentially paying for themselves due to the profitability of participating in the lucrative markets.

But those markets, which have been booming for much of the year, have cooled — not to say crashed — and consequently demand for GPUs has cooled as well, as Nvidia’s earnings statements show.

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If Nvidia had seen the cryptocurrency boom for what it was at the time — an important but misleading flare in value — it likely would not have produced the estimated $57 million in excess inventory aimed at the miner market. Mid-range gaming GPU sales declined as well, though this seems to have been part of a larger trend.

It will take a couple of quarters to get through all that inventory, during which time of course it will have to be steeply discounted, since miners and gamers understand implicitly that improved versions are just around the corner and are unlikely to pay full price for hardware approaching even a minor degree of obsolescence. The misstep caused Nvidia’s price to drop more than 19 percent Thursday, and it has not rallied today.

“This is surely a setback and I wish we had seen it earlier,” said CEO Jensen Huang on a press call following the announcement of the results.

Cryptocurrency markets may never return to the feverish state of competition they existed in for much of 2018. An explosion of “alt coins” and Initial Coin Offerings baffled casual investors in the ecosystem, and scams were (and are) rife. This led to an overall skepticism in the systems as a class, and even sophisticated and proven ones like Ethereum have suffered major devaluation.

There’s no doubt that blockchain and token economies will be a major part of the financial future (among other things) but the feeding frenzy of 2018 seemed unsustainable from the start. Already many cryptocurrency systems are moving away from the arms race of “proof of work” to the more equitable “proof of stake.” That change alone could decimate computing requirements if adopted at large (although established systems like Bitcoin are too far along to change, outside ill-advised forks like Bitcoin Cash).

Don’t bother shedding a tear for Nvidia, though. The company is rolling high and the GPU market is strong. But it seems that it too, alongside millions of others, has suffered the consequences of speculating on cryptocurrency.