Nvidia Pulls Through Crypto Winter — Quarterly Earnings Rise 16% (#GotBitcoin?)
Major global chipmaker Nvidia, popular with cryptocurrency miners, has outstripped analysts’ expectations with its latest set of quarterly financials. Nvidia Pulls Through Crypto Winter — Quarterly Earnings Rise 16% (#GotBitcoin?)
The firm’s Second Quarter Fiscal 2020, published on Aug. 16, revealed $2.58 billion in revenue at earnings of $1.24 per share — as compared with $2.2 billion in the preceding quarter.
Still 17% Down From Crypto-Driven Highs
While the latest results reveal a solid 16% increase over the previous quarter, year-on-year revenue remains down by 17%. Nvidia had earned $3.12 billion during the same period for the fiscal year 2019 amid massive demand for GPUs from cryptocurrency miners.
The firm’s outlook for the forthcoming quarter is a higher revenue of $2.9 billion, give or take 2 percent.
Alongside developments in its GPU output, the firm also highlighted the progress of its artificial intelligence business, as well as the ongoing profitability of its gaming business segment, which remains the main driver of its revenue.
Buoyed by the latest quarterly results, Nvidia’s stock (NASDAQ: NVDA) rose by 6.2%.
Weathering The Crypto Seasons
This January, Nvidia had decreased its financial estimates for Q4 for the fiscal year of 2019, citing a decline in mining during the crypto bear market among its reasons.
In December 2018, a class action lawsuit was launched against Nvidia over the losses reported by the company when lower crypto prices diminished demand for GPUs by miners.
The extent of Nvidia’s crypto-driven success during the market’s historic bull run has been the subject of some controversy: earlier this year, a financial analyst claimed that between April 2017 to July 2018 the firm had in fact raked in $1.35 billion more in revenue from mining-related sales than officially stated.
During crypto winter this March, Nvidia said it would manage to sell off the surplus inventory it had accumulated in anticipation of continued mining-driven demand — stock that CEO Jensen Huang had characterized as a “crypto hangover.”
Nvidia Files Motion to Dismiss $1B Class Action Over Crypto GPU Sales
Nvidia has filed for the dismissal of a complaint alleging it fraudulently attributed over $1 billion in sales to gaming markets amid the 2017 crypto bubble.
Major manufacturer of graphics processing units (GPUs) and computing hardware Nvidia has filed a motion to dismiss a proposed class-action lawsuit alleging that the firm misrepresented more $1 billion in sales during 2017 and 2018.
In addition to its popular ‘GeForce’ and ‘GTX’ products — favored by both gamers and crypto miners — Nvidia launched a GPU specifically designed for virtual currency mining dubbed ‘Crypto SKU’ in May 2017.
However, Nvidia reported only its Crypto SKU sales as having been made to cryptocurrency miners, and investors claim this misrepresented $1.126 billion in other sales as having been driven by demand from the gaming market.
In the motion to dismiss, Nvidia asserts that statements issued by its executives made it clear to investors at the time that it was impossible to know the exact purpose for which customers were purchasing the GPUs.
Nvidia Rejects Amended Complaint From Investors
Nvidia cites an August 16, 2018 earnings call in which the firm’s founder and chief executive Jensen Huang stated “whether they buy it for mining or do they buy it for gaming, it’s kind of hard to say” in regards to the firm’s GeForce GPU sales.
As such, Nvidia claims that its executives did not lie when they described crypto sales as representing a “small” portion of its revenue, as alleged in the amended lawsuit.
The firm also emphasizes that the original complaint was dismissed due to the allegations relying “entirely” on a report produced by Prysm Group — with the court rejecting the suit on the basis of the plaintiffs’ failure to plead in favor of the “assumptions and analysis” laid out in the Prysm report.
Amended Complaint Relies On Flawed Data
Similarly, Nvidia asserts that the amended complaint fails by relying on the findings from a 2018 report into the impact of crypto mining on the firm’s sales that was authored by consulting firm Jon Peddie Research:
“The Jon Peddie estimate rests on a host of unidentified and unexplained assumptions and inputs, which the [first amended complaint] does not allege that Prysm investigated at all. This renders Prysm’s analysis even less reliable than before.”
The firm also claims that the complaint selectively quotes its executives to mischaracterize states made concerning its GPU sales, and fails to address shortcoming previously identified by the judge.
Nvidia Doesn’t Want To Give Up Its 2017 ‘Crypto Craze’ Docs
Nvidia is trying not to hand over internal documents to plaintiffs who allege that the GPU manufacturer misrepresented its financials during the 2017 bull run.
The legal representatives of technology company Nvidia have argued that its investors are not entitled to access its internal records about the “crypto craze” of 2017 and 2018.
During a trial in the United States’ Delaware Court of Chancery on Sept. 17, Nvidia’s counsel argued that the plaintiffs have failed to show a “credible basis” for why Nvidia should be compelled to hand over the requested company documents.
Nvidia is facing a class-action lawsuit alleging that it misled investors as to how much its revenue relied on crypto miners buying its graphics processing units amid the 2017 bull run.
Patrick Gibbs of Cooley LLP criticized the plaintiffs’ decision to “rest on a paper record” at trial without offering live testimony as to their purpose for demanding that Nvidia hand over its internal documents. He also argued that evidence has been presented proving that the investors behind the suit currently own stock in Nvidia and thus maintain an interest in the suit.
The court advised both parties to submit post-trial briefings addressing Nvidia’s argument for why it should not hand over its internal records.
The lawsuit alleges that Nvidia made “false and misleading public statements concerning the company’s internal controls, prospects, and earnings.” The suit also levies accusations that Nvidia simultaneously sold $147 million worth of its shares “at artificially inflated prices.”
The investors allege that after launching its GPU dedicated to cryptocurrency in May 2017, the Crypto SKU, Nvidia solely attributed the sales of the SKU to miners to demand from miners.
Additionally, the plaintiffs estimate that $1 billion worth of the company’s popular GeForce GPU sales that Nvidia claims were purchased by gamers in 2017 were actually purchased by crypto miners.
After the crypto bubble popped and demand from miners began to dry up, Nvidia’s struggled to offload its GPU inventories and saw a 30% crash in its stock price by the end of 2018.
Nvidia Estimates Ethereum Miners Contributed 2%-6% of Q4 Revenue
Nvidia expects $50 million in revenue from its new mining-specific product during its first quarter of sales.
Nvidia says Ethereum mining activity contributed very little to its Q4 2020 revenue.
Although it lacks “the ability to accurately track or quantify” the end uses of its graphic processing units (GPUs), Nvidia CFO Colette Kress said the company estimates that between $100 million and $300 million—a “relatively small portion”—of Q4 revenue came from Ethereum miners buying GPUs to use in their mining equipment.
Nvidia reported a total of $5 billion in revenue for the Q4, implying mining sales represented 2%-6% of total.
Ethereum’s hash rate has grown 124% in the past year, according to data from Coin Metrics, in tandem with the general cryptocurrency market’s rally. This has driven demand for Nvidia’s GeForce RTX 3060 graphics card, much to the dismay of the company’s gaming customers. In the future, though, miner-contributed revenue for Nvidia is likely to come from purchases of another of the company’s products.
Nvidia earlier this week said it’s altering its GeForce RTX 3060 graphics card to limit its own efficiency if the card detects it’s being used for Ethereum mining, a move designed to ensure GPU supply is available to gamers. “We would like GPUs to end up with gamers,” Kress said on the company’s earnings call Wednesday.
To serve the mining community, the company is launching Cryptocurrency Mining Processors (CMPs), which are “optimized to improve Ethereum mining” and will give the company “more visibility” into the share of revenue contributed by cryptocurrency miners, Kress said.
Nvidia plans to sell its new CMPs to industrial Ethereum miners and expects the mining-specific product to generate roughly $50 million in revenue during its first quarter of sales. Nvidia also plans to quantify miner revenue contributions in all future quarterly earnings reports.
Nvidia Supply Shortage Won’t Stop $50M Q1 Crypto Miner Sales, Says CFO
A perfect storm consisting of COVID-19, supply shortages and surging crypto prices has resulted in the best financial quarter in Nvidia’s history, as the stock hits all-time highs.
Nvidia’s ongoing supply problems won’t stop the company from selling $50 million worth of its new CMP chip range in the first quarter of 2021, the company’s chief financial officer Colette Kress forecasted on Feb. 24.
Nvidia failed to meet demand from its core gaming customer base in 2020, and the trend looks set to continue into 2021. Added demand from a horde of cryptocurrency enthusiasts keen to direct Nvidia’s new RTX 30 series GPU to Ether (ETH) mining initially appeared to pile pressure on the company.
But the firm’s CFO expects the recently announced Cryptocurrency Mining Processor product line to hit $50 million in sales in the first quarter of the year. The CMP range is designed specifically for Ether mining, and its introduction was part of an attempt to allocate more units of its RTX 30 range to gamers.
Despite supply problems, Nvidia hit record revenues of $5 billion in the last quarter of 2020, while its stock price soared to all-time highs. This is a near-exact repeat of the market conditions present in 2018, when increased demand amid supply shortages pushed the stock price to the highest level in its history up to that time.
On Wednesday, United States President Joe Biden signed an executive order to address the shortage of semiconductors and microchips. A critical review will investigate the country’s failing supply lines, which have been shown to rely too much on Chinese manufacturing, highlighted by the COVID-19 pandemic.
The chip shortage boosted the value of the PHLX Semiconductor Index, which tracks the value of chip-related stocks, with the index gaining 70% in the past 12 months.
JPMorgan analyst Harlan Sur expects the pump to continue, even though the supply shortage won’t be corrected for some time.
Sur recently told MarketWatch, “We believe semi companies are shipping 10% to 30% BELOW current demand levels and it will take at least 3-4 quarters for supply to catch up with demand and then another 1-2 quarters for inventories at customers/distribution channels to be replenished back to normal levels.”
Sur said the previous quarter was the first in which every chip maker JPMorgan tracked actually exceeded forecasted earnings.
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