By Jeremy C. Owens, MarketWatch
MarketWatch photo illustration/iStockphoto
The explosion in new cryptocurrency seems to be boosting graphics-card makers like Nvidia Corp., but acting on the demand is fraught with potential danger.
When Nvidia /zigman2/quotes/200467500/composite NVDA -0.78% reports earnings for the second quarter of its 2018 fiscal year Thursday, the demand for its graphics cards from cryptocurrency “miners” is expected to be an important topic after reports suggested that there was a run on graphics cards, especially in Eastern Europe and Asia, for use in producing newer forms of the digital currency, notably on the Ethereum blockchain. Nvidia rival Advanced Micro Devices Inc. /zigman2/quotes/208144392/composite AMD -1.72% admitted in its quarterly earnings report, which beat expectations last month, that demand from the cryptocurrency market was an important factor in its performance, confirming some of the reports.
Also read: AMD earnings gave investors what they wanted, now it must deliver
The question is how or whether to specifically address this market for graphics cards. Analysts point out that there were surges of demand for graphics cards from cryptocurrency miners previously, but that it quickly dissipated. When that happened, many miners sold their cards on the secondary market, which can hamper demand for new cards and could be especially damaging if the companies increase shipments and suddenly have too much inventory.
Media and analysts reported in late June that Nvidia developed cryptocurrency-specific graphics-processing units, or GPUs, for release this quarter. If that is the case, Nvidia would likely announce the move Thursday in a bet that this crypto boom is different, which would be a different approach than AMD is taking.
“Some of our partners are also offering mining specific cards that have a different feature set, such that we’re really segmenting the market between gaming and mining. But it’s important to say we didn’t have cryptocurrency in our forecast, and we’re not looking at it as a long-term growth driver,” AMD Chief Executive Lisa Su said in her earnings call last month.
Read also: Intel seen losing to Nvidia amid ‘tectonic shift’ in technology
If Nvidia does jump on the cryptocurrency demand in a more focused way than AMD, it could find yet another road to potential growth, along with its booming server business and autonomous-driving efforts. But if demand suddenly disappears, it could end up with too much inventory and a short-term drag on its other businesses.
What to expect
Earnings: Analysts on average expect earnings of 70 cents a share on a GAAP basis, according to FactSet. Contributors at Estimize, which crowdsources estimates from analysts, fund managers, academics and others, are more bullish, with average expectations for adjusted earnings of 76 cents a share. Nvidia has beaten the FactSet consensus for earnings the last seven quarters in a row.
Revenue: Analysts surveyed by FactSet on average expect quarterly revenue of $1.96 billion. Estimize contributors are also more bullish on Nvidia sales, projecting revenue of $1.98 billion on average. Nvidia projected revenue of $1.91 billion to $1.99 billion. The company has beaten FactSet’s consensus revenue projection for eight quarters in a row.
The bulk of Nvidia’s revenue comes from its gaming business, which could include cards sold for cryptocurrency mining, is expected to produce sales of $1.07 billion.
Stock movement: Nvidia stock has nearly tripled in the past year, increasing 191% as the S&P 500 index /zigman2/quotes/210599714/realtime SPX +0.37% has gained 13.8%. Analysts have been pushing price targets higher amid the increase, and the average price target has moved from $93.30 at the end of 2016 to $171.31, according to FactSet, in line with Nvidia’s Monday closing price of $172.35. The majority of analysts covering the stock, 19 of 37, have the equivalent of a buy rating on the stock, with five rating it the equivalent of a sell.