Wells Fargo Slashes Nvidia’s Profit Forecast Citing Cryptocurrency Crash

Analysts are slashing Nvidia’s profit forecast amid the current cryptocurrency slump. Demand for mining chips has dropped significantly according to Wells Fargo Securities prompting them to lower their initial projections.

Ethereum, like many other cryptocurrencies, have been on bear territory for much of this year in the wake of increasing regulatory crackdowns. Ethereum has been particularly hit losing almost 70% of its value since  January.

Massive Gains

Ethereum gained 10,000% in 2017 amid a frenzy for cryptocurrencies. More demand for Nvidia and AMD GPUs drove their prices up in secondary markets.

Nvidia is one of the best-performing stocks in recent years. Its stocks gained 81% in 2017 and returned a whopping 227% from the previous year. Nvidia’s stock has gone up 560% in two years and 1700% in five years.

Downplaying the Impact

Nvidia CEO Jensen Huang is, however, trying to shake off the perceived impact of the cryptocurrency crash on its stocks.

“Our core growth drivers come from video games, professional graphics visualisation, data centre business which is now a multi-billion dollar business, doubling each year. The reason cryptocurrency became the most popular thing on top of our GPUs is that our GPUs are the largest installed base distributed supercomputing. Our processor serves as the perfect processor to enable the supercomputing capability to be distributed,” he told CNBC in an interview.

“In the last few weeks cryptocurrency prices have dropped significantly; we are trimming our below-consensus EPS and revenue estimates,” David Wong, an analyst with Wells Fargo Securities wrote to clients on Sunday.

Nvidia graphic cards are used by cryptocurrency miners to create new Ethereum coins in a process called “mining.” The new tokens or coins as they are called can be sold in the open market.

“We think that falling demand for GPUs used in cryptocurrency mining could impact Nvidia’s July 2018 and subsequent quarters,” Mr Wong wrote is quoted by CNBC.

Growing Influence

This is one instance of the growing influence of the nascent cryptocurrency market on more traditional industries. The company is however involved in many other businesses including data centres, gaming and self-driving cars and cryptocurrency mining chips only constitute a small part of its revenue.

Nvidia CEO is particularly upbeat about cryptocurrencies recently saying the digital assets were as popular as ever.

The company boasts of having the most distributed super-computing base which gels well with the very nature of cryptocurrency mining.

The Rise of Ethereum

Ethereum gained 10,000% in 2017 but has failed to keep the momentum this year. The network is known for its smart contract functionality which allows contracts to self-execute.

But importantly, Ethereum forms the backbone for the over 1500 cryptocurrencies that have been developed to date. Most ICOs are launched on the platform and activity has predictably reduced with the increased regulatory scrutiny.

Tokens derived from the Ethereum blockchain are priced relative to Ethereum. A flood of ICOs launching on the back of the platform saw its value rise rapidly. One of them was Bancor which raised $153 million worth of Ethereum in just three hours in June 2017.

Nvidia shares lost nearly 5% in value in the wake of the advertisement. Projected fiscal earnings have now been lowered from $5.39 to $5.26.