Impact Of Bitcoin Mining Ban In China, Nvidia Stocks Predicted To Rise Again

Nvidia graphics card, became the hardware most needed for bitcoin mining. (photo credit: Christian Wiediger/unsplash)

JAKARTA - Investors in graphics chip maker, Nvidia, are predicted to bounce back soon after the Chinese government's crackdown on cryptocurrency mining.

Since Beijing moved earlier this year to curb major cryptocurrency mining operations, the Chinese market has been flooded with cheap used graphics cards made by Nvidia. This graphics card was used to produce Ethereum.

According to New Street Research analyst Pierre Ferragu, Thursday, July 22, market saturation, and the overall decline in mining activity, prompted analysts to warn investors about Nvidia shares.

Ferragu said a large and rapid slowdown in cryptocurrency activity and an oversupply of Nvidia's powerful chips could cut into the company's earnings. Cryptocurrencies have become an increasingly important part of Nvidia's business in recent quarters.

According to Ferragu research, cryptocurrency revenue may amount to USD 500 million to USD 1 billion in the first quarter. That's roughly 10% to 20% of the total revenue of US$5.7 billion.

Nvidia's Chief Financial Officer, Colette Kress, recently said that in the first quarter, the company received around 150 million US dollars in revenue from the cryptocurrency-only chips it designed. Nvidia's graphics chips were originally meant for videogames, but gamers couldn't get them, so the company produced a cryptocurrency-only version.

Kress estimates $400 million in second-quarter sales of crypto mining chips, but how much of the overall revenue is tied to crypto mining alone is unclear.

Miners continue to use the company's regular graphics processor, although Nvidia has reduced the mining capacity of the card. "Nvidia doesn't have an accurate way of knowing how many chips to mine versus videogames," Kress said.

Ferragu's worries are the result of recent history. Back in 2018, the collapse in the prices of cryptocurrencies, including for Bitcoin and Ethereum, had a significant impact on Nvidia. Mining activity has devoured the sale of his cards and the drop in prices prompted miners to lower their prices on the used equipment market.

Nvidia's sales took a hit for the fourth straight quarter, with revenue falling 31%. Ferragu noted that Nvidia's shares pulled back more than 50% in the second half of 2018. He called the current situation similar, but said that it was unclear when the stock would drop.

"Nvidia's fundamentals actually remain strong," said Ferragu, but he urged investors to wait to buy shares.