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What was the Root of Nvidia’s Problems? Gamers or People Mining Cryptocurrency?

The declining demand for gaming graphics cards during the epidemic has been detrimental to Nvidia.
Nvidia issued a warning on Monday that revenue shortfalls in its gaming division will hinder the company’s earnings for the second quarter. When compared with cryptocurrency miners, the decline in demand from gamers has analysts scratching their heads and wondering how much of an impact it has had.

The company reported that its preliminary revenue for the second quarter was $6.7 billion, which was significantly lower than their estimate of $8.1 billion. The company reported that its revenue from the gaming division dropped by 44 percent from the previous quarter to a total of $2.04 billion.

The CEO, Jensen Huang, stated that as the quarter progressed, there was a dramatic decrease in the forecasts for the sell-through of the company’s gaming products. “Since we anticipate that the macroeconomic factors that have been hurting sell-through will continue, we have taken efforts together with our Gaming partners to alter channel prices and inventory.”

In April, Barron’s issued a warning that Nvidia stock could suffer if demand for gaming graphics cards in the pandemic era declined. This was especially true if cryptocurrency miners looked to unload high-end cards in preparation for the Ethereum blockchain network’s transition from a “proof-of-work” model to a “proof-of-stake” model. The change, which has not yet taken place, would result in the elimination of the requirement for graphics cards in the mining of ether. Observers of the industry have noted an increase in the number of promotions offered on high-end graphics cards, which were historically excessively marked up and sold at prices that were far higher than the MSRP.
Nvidia did not mention a pullback in demand from cryptocurrency miners in its news release, and the company declined to comment beyond the release. However, Raymond James analyst Melissa Fairbanks notes that the estimated 44 percent quarter-over-quarter drop was comparable in magnitude to a pullback that lined up with 2018’s crypto crash.

As a result, “we believe that while there is considerable negative sentiment around consumer spending, this current reset should reflect something of a ‘clear the decks’ scenario after a period of exceptionally strong demand,” Fairbanks wrote. “As such, we believe that while there is considerable negative sentiment around consumer spending, this current reset should reflect something of a ‘clear the decks’ scenario.”

That is not to imply game spending is heading higher. Research company NPD group reported earlier this month that overall consumer spending on videogaming in the United States dropped by 13 percent year over year to a total of $12.35 billion during the second quarter.

According to Mat Piscatella, games industry analyst at The NPD Group, who was quoted in a news release, “higher prices in everyday spending categories such as food and gas, the return of experiential spending such as travel and attending live events, a lighter release slate of new games, and continued new generation console hardware supply constraints were all likely contributors to the decline that was seen in the second quarter.”

These tendencies may also have an effect on customers’ spending on gaming cards, particularly given that a large number of consumers upgraded their computers in the midst of the epidemic, effectively driving demand forward. Following the conclusion of business on Monday, the games publisher

 

Software developed by Take-Two Interactive

(TTWO) also failed to meet the expectations of market analysts on its adjusted earnings, and the company warned that concerns regarding the macroeconomic environment were harming its results.

Fairbanks decreased her price target, moving it from $250 down to $240, but she kept her Strong Buy recommendation. Despite the fact that she lowered her expectations for the near future, she believes that the company will profit from the long-term growth of its datacenter, automotive, and software industries. On Monday, the price of Nvidia shares dropped by 6.3 percent, reaching $177.93.

She noted that “It is important to note that revenue from datacenters reached another all-time high,” and that “although sales were somewhat below original forecasts, the shortfall there was attributable solely to supply restrictions, rather than a decrease of demand.”

About the author

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Kathy Lewis

Kathy Lewis is an all-around geek who loves learning new stuff every day. With a background in computer science and a passion for writing, she loves writing for almost all the sections of Editorials99.

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