Crypto Hangover Weighs on Nvidia

Nvidia Corp. shares tumbled 18% after the chip maker projected declining revenue for the current quarter—a sharp turnabout from the company’s recent explosive growth—as it works through excess inventory left over from the cryptocurrency boom.

The company reported Thursday that third-quarter profit surged 47% and revenue rose 21%, short of Wall Street’s expectations. Nvidia’s outlook for the fourth quarter fell short, too. Investors pummeled the stock, sending it to $165 after hours from its close at $202.39.

Nvidia makes graphics chips used in videogame consoles and data centers. More recently, its hardware became popular with people mining virtual currencies, which requires intense computing power. Chief Executive Jensen Huang blamed the decline in cryptocurrency prices, which left far less demand for its processors used in mining. “The crypto hangover lasted longer than we expected, and we were surprised by that, but it will pass,” Chief Executive Jensen Huang said in an interview with MarketWatch on Thursday afternoon.

As a result, Nvidia stopped shipping some of its mid-priced chips to retailers, where they are stacking up in warehouses and the backs of stores. The company said its provision for inventories expanded more than five-fold in the fiscal third quarter to $70 million, and that the same provision had more than tripled for the first nine months of its fiscal year to $124 million.

The provisions for inventory lowered Nvidia’s gross margins by 1.8 percentage points in the quarter to 60.4 percent, though margins were still up from 59.5 percent a year earlier. Margins were also held down by $57 million in charges related to its previous generations of chips following the sharp fall-off in cryptocurrency mining demand.

Nvidia also said that its revenue derived from personal computer makers decreased by almost 40 percent because of lower demand for GPU products targeted for use in cryptocurrency mining.

 

Todd “Bubba” Horwitz