Nvidia (NASDAQ:NVDA) continued to be on a roll through 2020. The company’s RTX 3000 series of graphics cards were in such high demand that they resulted in lineups — a rare sight during the pandemic. Those cards remain difficult to find in stock. Now two weeks ago, Nvidia delivered fourth-quarter results that smashed Wall Street expectations, along with rosy guidance for Q1. Days before that, the company announced a new chip specifically for the surging cryptocurrency market. Yet somehow, NVDA stock is down 18% from its mid-February high.
Currently trading in the $500 range, NVDA stock is at levels not seen since October. Prior to this episode, though, Nvidia was a solid performer.
There was a detour in 2018, triggered by a meltdown in the cryptocurrency market, but NVDA rallied. Up to three weeks ago, when NVDA closed at an all-time high of $613.21, shares in the company had posted five-year growth of about 1,800%. That’s exactly what a growth investor is looking for.
This Crypto-Slump in NVDA Stock Is Not History Repeating
On Feb. 18, Nvidia announced that, for the first time, it was releasing a graphics card specifically for crypto miners. Using a new, optimized chip called a CMP (Cryptocurrency Mining Processor), the new cards are scheduled to go on sale later this month. At the same time, the company said chips on its upcoming RTX 3060 graphics cards would be hobbled when used for mining. It seems like a reasonable solution to a problem that has strained relations with the company’s key PC gamer demographic.
However, the NVDA stock slide kicked off with that announcement. In fact, the last time Nvidia shares slumped to this degree was back in 2018, during its “crypto hangover” phase.
Graphics cards are one of the most effective ways of “mining” cryptocurrency. So, when the value of cryptocurrencies shot up, miners bought up all the graphics cards they could lay their hands on. But when crypto values crashed and miners stopped buying those graphics cards for their rigs, Nvidia was suddenly left with a glut of cards. The aftermath of that situation in 2018 was an over 5o% drop in NVDA stock in just three months.
The current situation has some similarities, but it’s not the same. Yes, once again, mining has worked its way into the picture. And yes, NVDA shares are down sharply. However, the context is very different. Instead of this being a reaction to a card surplus because of a screeching halt in demand, this is a reaction to Nvidia making it official and marketing a video card specifically for crypto.
A Big Q4, Despite a Global Semiconductor Shortage
The recent fourth quarter could very well have been a so-so one for Nvidia.
For one, there has been an ongoing, global semiconductor shortage that’s disrupted the market for many computers, components and consumer electronics. We’ve known that the demand for Nvidia’s new RTX 3000 series graphics cards has been through the roof. With advanced features like real-time ray-tracing, gamers camped out last fall in the hope of snapping one up. But availability has fallen short of demand. So, there were fears that sales might not live up to expectations.
However, Nvidia actually pulled off a record quarter, blowing past Wall Street expectations. Revenue of $5 billion was up 61% year-over-year (YOY) and easily topped the expected $4.82 billion. Adjusted earnings per share (EPS) was also $3.10, compared to the $2.81 that analysts had been looking for. Finally, the company issued revenue guidance of $5.3 billion for Q1 — well above the $4.51 billion projection.
Earnings were reported on Feb. 24. The next day, NVDA stock dropped more than 8%. It has continued to slide since. Even a record-breaking quarter wasn’t enough to kick off a recovery.
Bottom Line on NVDA Stock
I don’t want to blame the news about the CMP cards for everything. Many techs stocks have been experiencing a similar slump in 2021.
However, the specter of the cryptocurrency market has clearly once again reared its ugly head and hit Nvidia investors. But the company isn’t counting on the crypto market. It’s announced a crypto-specific card to prevent all those mining rigs from keeping its core PC gaming customers from suffering.
Broader tech stock weakness or a market spooked by crypto — or a bit of both — it doesn’t matter what the cause is. The current dip in NVDA stock is an attractive opportunity regardless.
On the date of publication, Louis Navellier had a long position in NVDA. Louis Navellier did not have (either directly or indirectly) any other positions in the securities mentioned in this article. The InvestorPlace Research Staff member primarily responsible for this article did not hold (either directly or indirectly) any positions in the securities mentioned in this article.
Louis Navellier had an unconventional start, as a grad student who accidentally built a market-beating stock system — with returns rivaling even Warren Buffett. In his latest feat, Louis discovered the “Master Key” to profiting from the biggest tech revolution of this (or any) generation.