Nvidia Corporation (NASDAQ:NVDA) reported its Q1 earnings yesterday. In the run-up to the announcement, Nvidia stock hit an all-time high and the company announced record revenue and earnings. But in after hours trading, NVDA was down over 3%. What gives?
The bugaboo that spooked investors was the company’s disclosure, for the first time, that it made a big chunk of that revenue selling video cards to cryptocurrency miners. That market is volatile and expected to decline, and as a result, Nvidia stock took a hit.
NVDA Earnings Are on Fire
The Q1 Nvidia earnings report shows the company is firing on all cylinders. Revenue from its core video gaming business was up 68% year-over-year to $1.72 billion. Data center revenue, with high profile customers like Amazon.com, Inc.’s (NASDAQ:AMZN) AWS, was up 71% to $701 million.
Professional visualization (content creation) revenue grew 22% to $251 million. The company’s automotive business was up 4% to a record $145 million.
Overall revenue for the quarter hit a record $3.21 billion, up 66% from last year and GAAP EPS of $1.98 also set a new record, growing a whopping 151% from last year. That all sounds pretty spectacular, so why was Nvidia stock down over 3% in after-hours trading?
That data center revenue set yet another record for the quarter, but at $701 million, it missed analyst expectations of $703 million. What’s really spooking investors, though, is the company’s now openly admitted reliance on cryptocurrency mining.
Cryptocurrency’s Negative Influence on Nvidia Stock
Cryptocurrencies like Bitcoin elicit mixed reaction at best from investors. The digital currency is generated by a process called cryptocurrency mining, employing rigs packed with video cards to crunch numbers.
This has been good for the video card industry in the sense that they are selling more video cards due to the demand from these miners, especially NVDA rival Advanced Micro Devices, Inc. (NASDAQ:AMD), which has optimized products for cryptocurrency mining.
But there are downsides as well. The entire cryptocurrency business still has an aura of sketchiness around it. It has also sucked up the supply of video cards, reducing availability (and driving up prices) for gamers, NVDA’s core customers.
Cryptocurrency is also extremely volatile. When prices are high, miners snap up every video card they can, but then stop mining when prices drop.
Reuters points out that for the first time, Nvidia openly disclosed its sales from cryptocurrency mining. It amounted to $289 million, or nearly 9% of the company’s total Q1 revenue. NVDA also warned that revenue was expected to drop to around $100 million in Q2. There’s that cryptocurrency volatility.
Having a major revenue source that has a respectability issue, hurts the company’s primary revenue source, and is subject to rapid and often unpredictable changes isn’t something that investors are particularly fond of.
With Nvidia, the revenue from cryptocurrency mining has always been an open secret, but now that it’s officially being acknowledged and expected to drop, it has spooked some investors.
As a result, despite record earnings and solid gains across all its business lines, Nvidia stock is taking a hit.
As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.
