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Could China Spoil the Cryptocurrency Party for Nvidia?

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Oct. 11 2017, Published 3:07 a.m. ET

China shuts down bitcoin exchanges

China (MCHI) ordered the shutdown of commercial bitcoin exchanges in the country, dealing a massive blow to cryptocurrency traders and investors not just in the country but worldwide. Bitcoin prices plunged on reports of the Chinese government’s crackdown on the virtual currency.

However, experts do not see the shutdown of bitcoin exchanges in China as hurting sales of Nvidia (NVDA) chips to the cryptocurrency mining market. Nvidia, alongside its rival Advanced Micro Devices (AMD), has developed advanced graphics processors that are being adopted in the powerful computers used to mine virtual currencies such as bitcoin and Ethereum.

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Nvidia’s cryptocurrency sales

In fiscal 2Q18 (June quarter), Nvidia reported revenues of $251.0 million in its OEM and IP segment, which includes cryptocurrency-related sales. Nvidia linked $150.0 million out of the $251.0 million OEM and IP revenues directly to cryptocurrency sales.

From the chart above, we can see how Nvidia’s OEM and IP segment sales have trended over the last five quarters.

China’s move could fuel bitcoin mining

In a research note to investors cited by Barron’s, analyst Mitch Steves of RBC Capital argued that the shutdown of bitcoin exchanges in China could actually be a boon for Nvidia. According to Steves, people in China who want bitcoin but can’t purchase it on exchanges could resort to mining the currency. A rise in bitcoin mining would, in turn, lead to increased demand for graphics chips, rewarding Nvidia in the process.

Even if push comes to shove, cryptocurrency is largely a by-product of Nvidia’s chip innovation. The company’s advanced graphics chips are seeing strong adoption in the cloud computing and autonomous driving markets. Toyota (TM) and Baidu (BIDU) are among Nvidia’s partners in the autonomous driving technology market.

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