The crypto winter continues, and Nvidia (NASDAQ:NVDA) is the latest company to issue a warning about the consequences for public markets. On Monday, the chip giant released preliminary results for its second quarter that fell far short of Wall Street expectations, sending its stock down more than 6%. Nvidia’s market value fell by $30 billion due to this decline.
Nvidia’s specific challenge is that it expects a 44% quarter-over-quarter decline in revenue from its gaming segment, which includes sales of high-end graphic cards and other chips. The drop is nearly identical to what the company experienced during the previous crypto winter in 2018.
The current situation of the Crypto market affects many companies!
Dan Howley recently detailed the struggles revealed in gaming results from companies such as Microsoft (NASDAQ:MSFT), Activision Blizzard (NASDAQ:ATVI), and others. Essentially, the sector is being weighed down by a combination of uninspiring titles, a chip shortage, and a post-pandemic slowdown.
However, Nvidia’s slowdown is more than just a drop in interest from gamers building their rigs with the latest graphics chips. According to Fabricated Knowledge, a semiconductor expert, Ethereum’s pending network transition from proof-of-work to proof-of-stake, known as the Merge, is expected to slow processor usage.
“The merge” will affect NVIDIA GPU’s usage in the market
“It’s difficult for us to quantify the extent to which cryptocurrency mining contributed to Gaming demand with any reasonable degree of precision,” Nvidia CFO Colette Kress said during the company’s first-quarter earnings call. “The slower Ethereum network hash rate increase is most likely due to decreased mining activity on GPUs. Therefore, we anticipate a decreasing contribution in the future.”
“Changes to crypto standards and processes, including, but not limited to, the pending Ethereum 2.0 standard, may decrease the usage of GPUs for Ethereum mining as well as create increased aftermarket resales of our GPUs, impact retail prices for our GPUs, increase returns of our products in the distribution channel, and may reduce demand for our new GPUs,” Nvidia acknowledged in its latest 10-Q.
A warning for stock market investors!
Through Monday’s close, the year-to-date declines in Coinbase (NASDAQ:COIN), Block (SQ), and MicroStrategy (MSTR) were 60%, 47%, and 39%, respectively.
In the second quarter, MicroStrategy and Block took $918 million and $36 million impairment charges on their bitcoin holdings, respectively. Tesla (NASDAQ:TSLA) made a $64 million profit on selling $936 million in digital assets in the second quarter, despite a $170 million impairment loss in the first quarter. Coinbase will release its quarterly results after the market closes on Tuesday.
Given that current regulations require businesses to record losses on digital assets held on their balance sheets but forbid the recognition of gains unless sold, critics may claim that these losses are merely accounting gimmicks.
But these losses make it more challenging for public companies to strike the delicate balance between pleasing shareholders and taking significant risks to support future growth.