Nvidia (NASDAQ:NVDA), along with rival Advanced Micro Devices (NASDAQ:AMD), has enjoyed the booming crypto currency market. Demand for its video cards to be used in crypto mining rigs accounted for $289 million in revenue last quarter. That’s helped push Nvidia stock to historical highs.
At the start of the summer, Nvidia was trading at over five times its levels from just two years ago. However, the company just released its Q2 earnings report, which was fine as far as the numbers went. There was plenty for investors to like, but the party was ruined by the announcement that the bottom has fallen out of the crypto currency market.
As a result, Nvidia stock dropped by as much as 6% in after-hours trading.
Nvidia’s Record Q2 2019 Earnings
Nvidia released its Q2 2019 earnings report showing a company that is firing on all cylinders. Revenue was up 40% year-over-year, income was up 89% YOY and EPS of $1.76 was a 91% YOY increase that also handily beat analyst expectations.
Highlights included its Datacenter division(which includes customers like Amazon (NASDAQ:AMZN)) hitting $760 million in revenue (83% growth) and its core Gaming division revenue growing 52% to $1.80 billion.
Professional Visualization saw 20% revenue growth, and that is expected to get a boost going forward after the announcement last week of new Turing-based video cards for the pro graphics market. Even its Automotive revenue grew 13%, despite some challenges in the self-driving car market.
Everything so far sounds great, so why did Nvidia stock slip in after-hours trading?
It was all about the one market that has helped to boost Nvidia (and AMD) over the past year: cryptocurrency.
Nvidia Stock and the Cryptocurrency Slump
Nvidia has had a significant boost from the cryptocurrency market. The rigs used to “mine” bitcoin, ethereum and other cryptocurrencies relied on the parallel processing power of video cards.
When the crypto market took off, miners snapped up Nvidia video cards intended for the gaming market. The company had to limit purchase quantities in an attempt to keep stock available for gamers.
As I mentioned earlier, those crypto sales accounted for $289 million in revenue in Q1 2019 — 10% of Nvidia’s total for the quarter.
But the company has always looked warily at the volatile crypto market and had predicted that revenue would fall to $100 million this quarter. Cryptocurrencies have been slumping, and that means less demand for video cards to power new mining rigs.
Instead, Reuters reports that in its earnings call Nvidia said it earned only $18 million in revenue from the crypto market. The company warned investors that revenue from cryptocurrency miners would be “immaterial” for the second half of the year.
The expected loss of that crypto revenue — which also had the effect of contributing to slightly lower than expected revenue guidance for Q3 — took the shine off Nvidia.
Is Nvidia’s Run Over?
Expect this to be a minor speed bump for Nvidia. The company’s key divisions are all showing strong growth and with the expected announcement of next generation video cards for PC gaming, sales are expected to pick up over the holiday shopping season.
And who knows, that volatile crypto currency market could just as easily flip back into boom mode, delivering another unexpected revenue boost in the future, but Nvidia’s not counting on it.
As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.