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Nvidia slides 17 per cent after declining cryptocurrency boom mutes graphics card demand

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Nvidia has forecast poor sales for its graphics cards over the holiday quarter which has been partly blamed on declining demand following a weakening of the cryptocurrency boom.

Cryptocurrencies such as Bitcoin and Ethereum use a proof-of-work system, generally dubbed mining, which rewards miners with fractions of that cryptocurrency. This process, which uses powerful computers to solve complex, computational problems, is primarily run on graphics cards – Nvidia’s primary product.

Shares in the company plunged 17 per cent after it announced its sales forecast. It pinned the blame on unsold chips piling up with distributors and retailers after the cryptocurrency mining boom evaporated.

“Our near-term results reflect excess channel inventory post the crypto-currency boom, which will be corrected,” said Jensen Huang, founder and CEO of NVIDIA.

“Our market position and growth opportunities are stronger than ever. During the quarter, we launched new platforms to extend our architecture into new growth markets – RAPIDS for machine learning, RTX Server for film rendering, and the T4 Cloud GPU for hyperscale and cloud.”

Huang offered hope for investors pinning the company’s future on AI which he said was “advancing at an incredible pace” and driving revenues for Nvidia’s Data Center platforms.

“Our introduction of Turing GPUs is a giant leap for computer graphics and AI, bringing the magic of real-time ray tracing to games and the biggest generational performance improvements we have ever delivered,” he added.

To cope with the changes in demand, Nvidia has stopped shipping some of its mid-priced chips to retailers, where they are stacking up in warehouses and the backs of stores.

Nvidia said it expected current-quarter revenue of $2.7bn, plus or minus 2 per cent, well below analysts’ average estimate of $3.40bn, according to IBES data from Refinitiv.

Kinngai Chan, analyst at Summit Insights Group, said the problem was that inventories of Nvidia’s older gaming chips, based on a technology it calls Pascal, were piling up even as demand for new chips released in August was weaker than expected.

Other analysts have also laid partial blame on the escalating trade war between the US and China, which has seen tariffs imposed on various goods.

Nvidia has been enjoying a strong rally over the last few years, with shares worth just $30 at the beginning of the 2016. Following yesterday’s plunge, its share price fell to around $168.

In July a study suggested Nations would struggle to reach their carbon reduction targets set by the Paris Agreement due to high energy usage from cryptocurrency miners. 

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