Well, that didn’t take long. Nvidia (NASDAQ:NVDA) stock has slumped more than 10% since I warned investors that Nvidia had farther to fall a few weeks ago. And even with the stock market roaring higher this week, Nvidia stock has only managed a modest recovery.
Investors remain down on Nvidia’s prospects for several good reasons. The pop in gaming revenues is nice, but there is only so much to be had there. The Bitcoin-powered sales boom is never coming back. Meanwhile, Nvidia’s revenues are declining in its other major business segments.
Nvidia: Looking For A New Board Member?
While Nvidia has plenty of business issues to worry about, the company now faces a public relations issue of a most unlikely source. One of the members of its Board of Directors, Mark Stevens, got into a brawl at the NBA finals.
Stevens is a prominent tech industry investor, having worked for Sequoia. He is also a part owner of the Golden State Warriors, who are in the NBA finals.
Stevens was courtside at a game between the Raptors and his Warriors on Wednesday. At one point, Raptors point guard Mark Lowry dove into the stands chasing the ball. At that point, Stevens started cursing at Lowry and made physical contact. Stevens was ejected from the game, fined $500,000, and banned from attending future Warriors games. The Raptor player said that:
“He had no reason to touch me. He had no reason to reach over two seats and then say some vulgar language to me. There’s no place for people like that in our league. Hopefully, he never comes back to an NBA game.”
CNBC reached out to Nvidia to ask about the company’s reaction to their board member’s most disappointing public behavior. However, Nvidia’s spokesperson declined to comment on the incident. Regardless, it wouldn’t be at all surprising if Nvidia asks Stevens to resign going forward. Additionally, ESPN reported that LeBron Stevens is demanding “swift action” to be taken against Stevens for his misconduct.
Bitcoin and NVDA Stock
Turning away from Nvidia’s board and back to its business brings us to Bitcoin. The price of Bitcoin surged from $4,000 in April to $5,500 in May and then $9,000 early in June. In the past, NVDA stock would have surged with such a euphoric move.
Nowadays, however, NVDA stock keeps going down and down, even as crypto enjoys its best moment since December 2017. The fundamental problem here is that most miners no longer use Nvidia or AMD (NASDAQ:AMD) cards for mining. Instead, they use specialized high-end gear.
You can still do profitable and efficient mining with Nvidia gear for some altcoins. But, at least so far, the current Bitcoin run has been mostly in Bitcoin itself, rather than the whole crypto universe. Crypto will have to get far more momentum going again before it will benefit Nvidia stock this time around. Don’t read too much into the pop in gaming revenue from the last quarterly earnings report. The glory days of late 2017 aren’t coming back again.
China and Nvidia Stock
Ironically, the current run in Bitcoin is arguably due to the trade war situation with China. Rumors abound that much of the Bitcoin buying is coming from Chinese folks who are eager to transfer capital out of the country. The Yuan has weakened sharply in recent weeks and there are reports of capital flight. That’s great news for Bitcoin, but it’s not good news for Nvidia anymore.
Instead, Nvidia is suffering from a dramatic demand slowdown as companies are loath to invest money without knowing what the playing field will look like in the coming months.
In the recent stock market decline, the S&P 500 fell seven percent. However, the semiconductor industry, as measured by the VanEck Vectors Semiconductor ETF (NYSEARCA:SMH) fell nearly 20%.
The Trump Administration’s battle with Huawei, in particular, threatens to cast a dark shadow over semiconductor stocks going forward. The tariffs alone are a major issue that will greatly reduce demand in the industry, but the prospect of Huawei being frozen out of the U.S. market adds a whole new dynamic.
If the trade war drags on, Chinese companies will stop buying parts from U.S. suppliers and rebuild their supply chains with chips from other suppliers, which would permanently lower sales going forward.
Nvidia Stock Verdict
Yes, I know Nvidia stock has plummeted over the past year. In fact, since its high of $293 per share, NVDA has lost more than half of its value. At this price, it must be cheap, right?
Sorry, but it’s not. NVDA stock is still selling for more than 25x forward earnings. It pays an anemic dividend yield of just 0.4%. Revenues shrank 31% year-over-year.
And anyone hoping that the upcoming Mellanox (NASDAQ:MLNX) merger would fix things is bound to be disappointed. That merger is under increasing scrutiny due to the trade war as well.
Mellanox stock has dropped sharply in recent weeks as uncertainty around the deal mounts. Even discounting Mark Steven’s boneheaded behavior and its poor reflection on Nvidia, the company has plenty of other pressing problems. There’s no rush to buy NVDA stock here.
At the time of this writing, Ian Bezek held no positions in any of the aforementioned securities. You can reach him on Twitter at @irbezek.