Is Nvidia’s Slowdown Related to Video Games…or Cryptocurrency?

18 days before its results were published, processor manufacturer Nvidia preferred to take the lead. In a press release, it warned that it will miss its 17% sales target for the second fiscal quarter, by $6.7 billion instead of the $8.1 billion it had forecast in May. The company justifies this failure with the difficulties of the video game market, the slowdown in the sale of computers, which leads to a decline in sales of processors. But she did not mention the general drop in cryptocurrency prices, which reduced interest in mining – an activity that requires the use of wizards. Nvidia’s stock price fell 10% after these announcements.

What are the uses of Nvidia GPU?

The company forecast revenue of more than $3 billion for its “games” division. [jeu vidéo, ndlr]But it only generated $2.04 billion in sales. In other words, it only achieved 66.7% of its goals. Above all, this is the first time in three years that the gaming division has achieved lower turnover than the previous quarter. Even worse, its current level is slightly higher than it was before the health crisis. The market was expecting a drop in GPU sales, in particular because many manufacturers (such as Asus or MSI) and PC assemblers have reported their numbers. But analysts did not expect the scale of this collapse. And for good reason: The decline in GPU sales may have a different reason than the decline in gaming PC sales.

The real question is how much of this overhaul is related to gaming, and how does it relate to cryptocurrency?“,” reports to La Tribune and Jacques-Aurélien Marcireau, Co-Director of Equity Management at Edmond de Rothschild Asset Management. Nvidia is the main manufacturer of graphics processing units, the processors known as “graphics cards,” which power every computer. Mechanically, the decline in PC sales is affecting GPU sales. But Nvidia processors are also popular among crypto processors. Roughly speaking, this activity is to put the computing power of one’s computer – contained in its processors – at the service of the processes needed to validate blockchain transactions. In exchange for participation, the owner of the computer receives a small portion of the value generated in the form of cryptocurrency. The result: The explosion in the price of bitcoin (and others) during the health crisis has led to a proliferation of “farms” full of processors dedicated to bitcoin mining.

The problem: When the price of cryptocurrencies drops, there is less interest in mining. A miner must provide a significant amount of computing capacity – with the associated costs (hardware, electricity, space, etc.) – but the cryptocurrency that they receive in return is worth less in dollars or euros. However, as Jacques-Aurélien Marcireau points out, Nvidia doesn’t (and probably doesn’t know) the number of GPUs used for mining among those that power high-end gaming PCs.

Still crazy growth in data centers

If the gaming division, Nvidia’s historic business, is going through a turmoil, that’s not the case for the data center division. It also missed its revenue target, but to a lesser degree, 6 points below expectations. It posted an impressive growth of 61% compared to last year, reaching $3.8 billion. Nvidia processors power a large portion of servers that are running for the cloud, a rapidly growing market led by the trio of Amazon, Microsoft and Google.

The group particularly takes advantage of the efficiency of its GPUs to train so-called “artificial intelligence” algorithms. “Today, Nvidia has almost a monopoly on reinforcement learning [aussi connu sous le nom de deep learning, ndlr]”, defines Jacques Aurelien Marcero. The result: its processors conquered the data centers, at the expense of Intel, whose turnover in the sector fell by 16% in the second quarter compared to last year.

In other words, even if the gaming division’s turnover returns to its pre-crisis level – with the market for gaming PCs saturated and demand from the crypto segment falling – Nvidia’s growth trajectory should continue its course.