Why Nvidia Stock Defied Crypto Worries Today
What happened
Shares of semiconductor giant Nvidia (NASDAQ: NVDA) closed 3.2% higher on Wednesday after analysts at New Street Research upgraded the shares to a buy rating with a $270 price target.
Image source: Getty Images.
So what
Nvidia makes semiconductors used to power everything from video games to artificial intelligence to cryptocurrency mining. It's the last of these activities, though, that has had investors worried of late.
With the price of Ethereum, for example, crashing 12% over the past week, investors have worried whether demand for Nvidia's graphics processing units, repurposed for crypto mining, will hold up -- or if crypto miners discouraged by falling prices might instead dump secondhand Nvidia chips on the market, hurting sales for new chips.
But in that regard, New Street's note today, covered on StreetInsider.com, suggests that investors may be making mountains out of semiconductor molehills. "A weakness driven by crypto would be limited, short-lived, and only an opportunity to add to positions," argued the analyst, urging investors to look past any potential crypto crash, and focus instead on Nvidia's core business of building graphics processing units for games.
Now what
Demand for Ethereum, after all, didn't really pick up until midway through the pandemic -- in late 2020, early 2021. But even without that extra demand, a review of Nvidia's financials pre-2021 shows that Nvidia has consistently been able to grow its GPU revenue, which more than doubled (up 135%) over the five-year period from 2016 through the end of 2020, for example.
Even a sudden evaporation in demand for GPUs for crypto mining, therefore, shouldn't affect that long-term trend of growing demand for graphics chips. Moreover, the topsy-turvy crypto industry has been marked by multiple peaks and troughs over its short history. Even if demand dries up in the short term, there's a good chance that demand will pick up thereafter -- and pull Nvidia's stock price higher along with it.
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Rich Smith has no position in any of the stocks mentioned. The Motley Fool owns and recommends Ethereum and Nvidia. The Motley Fool has a disclosure policy.
