End of the crypto boom 

NVIDIA’s (NVDA) stock slumped as the end of the windfall gains from the crypto boom resulted in lower-than-expected fiscal Q3 2019 revenue guidance. In Q1 2018, NVIDIA and Advanced Micro Devices (AMD) earned $289 million and $165 million in crypto-related GPU (graphics processing unit) sales, respectively. AMD had a higher exposure with crypto-related sales accounting for 10% of its quarterly revenue compared to NVIDIA’s 9%.

Crypto Boom Ends for NVIDIA and AMD: Now What?

Crypto miners preferred AMD’s GPUs. Thus, when the crypto boom faded, NVIDIA reported a bigger slump in crypto card sales than AMD. In the second quarter, NVIDIA’s crypto-related sales fell 94% sequentially to $18 million, way below its estimate of ~$100 million, whereas AMD’s crypto-related sales fell 36.4% to $105 million. Both companies expect their crypto-related sales to be negligible in calendar H2 2018. Thus, they excluded these sales from their Q3 2018 guidance.

NVIDIA’s core markets

Many analysts that are bullish on NVIDIA stated that investors are putting too much emphasis on crypto-related sales, which are not the company’s core market. The company is still strong in its core markets, with the fastest YoY (year-over-year) growth of 83% reported in the data center space, followed by gaming at 52%, professional visualization at 20%, and automotive at 13% in fiscal Q2 2019. At the fiscal Q2 2019 earnings call, NVIDIA’s chief executive, Jensen Huang, stated that crypto-related revenue would be immaterial in H2 2018.

Turing: NVIDIA’s next growth catalyst

The company recently announced the world’s first ray tracing GPU architecture, “Turing,” on the Quadro platform, which is due to release in calendar Q4 2018. The launch will likely boost its professional visualization revenue.

NVIDIA is expected to announce Turing-based gaming GPUs on August 20. According to a CNBC article, RBC Capital Markets analyst Mitch Steves believes the softness in NVIDIA’s Q3 2019 revenue is due to its transition to Turing GPU. Gamers generally delay their purchases when a new model is close to launch. He expects the company to launch Turing-based gaming GPU at the end of August 2018, which could once again boost the company’s gaming revenue.

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