Crypto Weakness Hurt Nvidia Stock, But That’s a Buying Opportunity
Nvidia (NASDAQ:NVDA) shares have seen a dramatic drop in price this week. From a close of over $750 on Monday, to currently trading around the $194 level. There’s no need to panic here, however. This was planned. The big drop is primarily attributable to the company’s 4-for-1 stock split, which went into effect on Tuesday morning. But there is another factor that has been weighing on NVDA stock lately.
Specifically, I’m talking about the drama that’s been roiling the cryptocurrency market.
With many cryptocurrencies experiencing big drops, it’s only natural that NVDA stock is going to feel some heat. The company doesn’t rely on crypto miners — in fact, Nvidia has gone to considerable lengths to isolate its primary lines of business from the effects of crypto mining.
However, many investors remember the dark days of 2018, when NVDA plummeted because of a “crypto hangover.” But this is not 2018. If you are interested in adding Nvidia shares to your portfolio, think long term. If anything, the downward pressure on NVDA because of the crypto situation represents a buying opportunity.
Trouble in the Cryptocurrency Markets
After flying high through late 2020 and early this year, some of the leading cryptocurrencies have experienced a major decline in value. Bitcoin (CCC:BTC-USD) dropped below the $30,000 level in July. That’s half of what it was worth in April. Ethereum (CCC:ETH-USD) is currently valued below $1,800, which represents a drop of around 55% from its value in April.
There is a direct relationship between the prices of used graphics cards and the value of cryptocurrencies. The Economist studied reseller data and found the price of used GPUs and the price of Ethereum “moved in lockstep.” With cryptocurrency values continuing to fall, that relationship has caused some panic in the market that’s being reflected in the price of NVDA stock.
In the week before the company’s stock split, Nvidia shares slid nearly 11.5%. That drop can be directly traced back to ongoing declines in cryptocurrency value. Dropping prices don’t just translate to a lower price for used GPUs — which does not directly affect Nvidia — it also means the demand for new graphics cards may drop. That can definitely have an impact on the company.
However, I wouldn’t let the weakness in the cryptocurrency market scare me off NVDA stock.
This Is Not 2018
As I wrote several weeks ago, 2021 is not destined to be another 2018 for NVDA stock. The company has taken measures to isolate the crypto business from its other, more lucrative, customers. The RTX 3000 series Nvidia graphics cards marketed at gamers and PC owners have been hobbled in terms of their effectiveness when deployed as part of crypto mining rigs. In addition, Nvidia released new graphics cards made specifically for crypto mining — but they aren’t a great option for gamers.
In other words, the company took measures to prevent crypto mining from cannibalizing its other lines of business. It also made it less likely that crypto miners would flood the market with used GPUs as they shut their rigs down.
While crypto revenue is easy money for Nvidia, let’s put the impact of it softening in perspective. In the first quarter, the company reportedly booked $155 million in revenue from the sale of crypto mining GPUs. However, total revenue for the quarter was $5.66 billion.
Even if crypto sales dropped to zero, Nvidia would shrug it off.
Bottom Line on NVDA Stock
Prior to the stock split, NVDA stock had delivered a return of 43% so far in 2021. Impressive. That’s despite the market turning on many tech stocks earlier in the year and the effects of the plummet in cryptocurrencies. Even more impressive.
This Portfolio Grader ‘C’-rated stock is a top pick among semiconductor stocks and it has multiple product lines (including data center) that are experiencing strong growth. Weak crypto prices might hurt Nvidia revenue slightly, but that’s relatively minor and likely to be a short-term issue. Rather than avoid NVDA stock because of it, I would look at the hit to NVDA as an opportunity.
On the date of publication, Louis Navellier had a position in NVDA. Louis Navellier did not have (either directly or indirectly) any other positions in the securities mentioned in this article. InvestorPlace Research Staff member primarily responsible for this article did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
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