Is Nvidia’s Slowdown Related to Video Games…or Cryptocurrencies?
18 days before releasing its results, processor maker Nvidia preferred to take the lead. In a press release, it warned that it will miss its revenue target for the second fiscal quarter by 17%, with $6.7 billion versus the $8.1 billion expected in May. The company attributes this failure to the difficulties of the video game market and the slowdown in PC sales, causing processor sales to drop. However, she fails to mention the general decline in cryptocurrency prices, which has reduced interest in mining them – an activity that requires the use of processors. Nvidia’s stock price fell 10% following those announcements.
What are Nvidia GPUs used for?
The company forecast sales of more than $3 billion for its “gaming” division [jeu vidéo, ndlr], but it only made $2.04 billion in sales. In other words, she only achieved 66.7% of her goals. Most importantly, it’s the first time in three years that the gaming division’s revenue was down on the previous quarter. Worse, its current level is only slightly higher than before the health crisis. The market expected GPU sales to drop, especially as several manufacturers (such as Asus or MSI) and PC assemblers had communicated their numbers. But analysts hadn’t anticipated the magnitude of this collapse. And with good reason: The decline in GPU sales could have a different cause than the decline in gaming machine sales.
“The real question is how much of this fix has to do with gaming and how much with cryptocurrency.‘ reports La Tribune, Jacques-Aurélien Marcireau, Co-Director of Equity Management at Edmond de Rothschild Asset Management. Nvidia is the main manufacturer of GPUs, processors better known as “graphics cards” that equip every computer. Mechanically, therefore, a drop in PC sales impacts GPU sales. But Nvidia’s processors are also popular with cryptominers. Roughly speaking, this activity consists in putting the computing power of its computer – contained in its processors – at the service of the operations necessary to validate the transactions of a blockchain. In return for participating, the computer owner receives a fraction of the value created in the form of cryptocurrency. Result: The price explosion of bitcoin (and others) during the health crisis has led to the multiplication of “farms” filled with processors designed to mine bitcoin.
Problem: when the price of cryptocurrencies decreases, the interest in mining decreases. The miner has to provide just as much computing power – with the associated costs (hardware, electricity, space, etc.) – but the cryptocurrency they receive in return is worth less in dollars or euros. However, as Jacques-Aurélien Marcireau points out, Nvidia does not share (and perhaps does not know) how many GPUs are used for mining among those who power high-end computers for gaming.
Still crazy growth in data centers
If the gaming division, Nvidia’s historic business, is going through turmoil, it’s less the case for the data center division. The revenue target was also missed, but to a lesser extent, 6 points below forecast. It posted an impressive 61% year-over-year growth to $3.8 billion. Nvidia processors power a large portion of the servers running for the cloud, a rapidly growing market fueled by the Amazon-Microsoft-Google trio.
In particular, the group uses the performance of its GPUs to train so-called “artificial intelligence” algorithms. “Today, Nvidia has a near-monopoly on enhanced learning [aussi connu sous le nom de deep learning, ndlr]”, specifies Jacques-Aurélien Marcireau.Result: its processors are penetrating the data centers at the expense of those of Intel, whose sales in the sector fell by 16% in the second quarter compared to the previous year.
In other words, even if gaming division revenue returns to pre-crisis levels — with gaming computer market saturation and reduced demand from crypto — Nvidia’s growth trajectory is likely to continue on its path.