The tech giant Nvidia released its earnings report for the third quarter (Q3). The report revealed that the demand for Nvidia’s graphics processing units (GPUs) among crypto miners has dried up.
Why has the demand for crypto mining dried up?
Jensen Huang, the founder and CEO of Nvidia, stated in the report that 2018 has been harsh for crypto miners. The crypto hype in 2017 drove up the prices and attention for cryptocurrencies and mining. The crypto boom drove up prices for Nvidia’s gaming cards. However, it is not as profitable anymore, and the demand has disappeared. Nvidia was not fast enough to lower the prices which have made it difficult for them to attract new customers.
“Our near-term results reflect excess channel inventory post the cryptocurrency-boom, which will be corrected. Our market position and growth opportunities are stronger than ever. During the quarter, we launched new platforms to extend our architecture into new growth markets – RAPIDS for machine learning, RTX Server for film rendering, and the T4 Cloud GPU for hyperscale and cloud.”
Huang told Reuters that the downtrend has lasted longer than expected and they did some miscalculations:
“The crypto hangover lasted longer than we expected. We thought we had done a better job managing the cryptocurrency dynamics.”
How will Nvidia move forward regarding the lower crypto mining demand?
Nvidia reported disappointing sales for the third quarter and blamed on onsold mining chips. The earnings expectations were missed, and the stock plunged 17 per cent. As a result of the lower market interest, Nvidia stopped shipping for a while. They stacked up their warehouses, and their inventories expanded more than five-fold to $70 million. The same provision had more than tripled for the first nine months of its fiscal year to $124 million.
The provisions for inventory lowered Nvidia’s gross margins by 1.8 percentage points in the quarter to 60.4 per cent. Even though it was lower than last quarter, the margins were still up from 59.5 per cent a year earlier. Margins were also held down by $57 million in charges related to its previous generations of chips following the sharp fall-off in cryptocurrency mining demand. Nvidia said it expected current-quarter revenue of $2.7 billion, plus or minus 2 per cent, well below analysts’ average estimate of $3.40 billion, according to IBES data from Refinitiv.
Even though the market has been falling throughout the year and the demand for mining chips has decreased, Nvidia has expanded in other areas. Huang told Reuters that the specific uses for Nvidia’s chips such as machine learning were still expanding.
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Dennis Sahlström has been trading and investing since 2012 and has for the last two years been consistently profitable. He has been in the crypto- and blockchain space since the middle of 2017 and realized its potential for our world, not least how it is transforming the society we live in. He has now created an education platform, together with the wealth coach Marcus the Maria. They teach regular people how to invest and trade in the cryptocurrency market with proven strategies. If you want to learn more and feel like its time to get into this new asset class, download our free book and register to the next live training to get your future in cryptocurrencies started.