Will a jump in crypto chip demand lift the Nvidia share price?

The Nvidia [NVDA] share price has gained 76.6% in the past 52-weeks, closing at $201.88 on 13 August. With the chipmaker due to report its second-quarter earnings for the fiscal year 2022 after the markets close on 18 August, what can investors expect amid a global semiconductor shortage?

The stock had gained early in the year, with the Nvidia share price climbing 16.6% to close at $153.21 on 16 February. However, the stock slipped to close 8 March at a low of $115.87, 11.2% down in the year to date.

The next peak for the Nvidia share price came on 15 April, when the stock rebounded to close at a high of $161.34, which marked a year-to-date rise of 23.6%. A month of falling prices followed, with the Nvidia share price closing 13 May at $136.62.

But from here, the Nvidia share price entered a positive run that – barring a brief but dramatic dip in mid-July – pushed the stock to a 52-week high of $208.75 during intraday trading on 7 July. As of 13 August, the Nvidia share price has gained 54.7% in the year to date.  

Crypto chips set to see outsized growth

Zacks Equity Research analysts have a consensus earnings estimate of $1.01 per share, while analysts polled by CNN Money had a consensus estimate of $1.02. These figures represent year-over-year earnings growth of 83.6% and 85.4%, respectively, on the $0.55 reported a year ago. The Zacks’ earnings estimates ranged from $0.99 to $1.03, while the CNN Money panel had a wider spread, with estimates ranging from $0.96 to $1.07.

Zacks analysts forecast sales of $6.34bn, representing an 84.6% increase year-over-year, with the CNN Money consensus sales estimate broadly similar at $6.3bn. Zacks analysts’ sales estimates were spread between $6.30bn and $6.43bn, while CNN Money’s were – in this instance – more tightly grouped, all falling between $6.2bn and $6.5bn.

Meanwhile, Nvidia itself is targeting revenue of $6.3bn “plus or minus 2%” for the upcoming second quarter.

Last quarter’s reported sales and earnings were above analysts’ expectations, but despite this, the Nvidia share price fell 1.4% on 27 June, the day following the report’s announcement, which was released after markets closed on 26 June. Barron’s attributed this fall to an over-dependence on cryptocurrency mining revenue generated by its Ampere graphics processing units (GPUs).

Nvidia’s finance chief Colette Kress said during its first-quarter earnings call that $155m was made in crypto chip revenue and, at the time, forecast $400m such revenue for the upcoming earnings report. It remains to be seen whether over-achievement on this front would be positive or negative for the Nvidia share price. If the percentage of its revenue derived from crypto mining increases, investors’ concerns over Nvidia’s exposure to a fall in the price of cryptocurrencies such as Ether [ETH] could intensify. The Nvidia share price fell 18% in a single day on 16 November 2018, when the company was caught in a similar situation.

In worrying signs for Nvidia on this front, falling GPU prices were recently linked to a slip in the price of Ether [ETH]. Ether fell from more than $4,000 in May to below $1,800 on 20 July, according to the Coin Telegraph. However, the price has since recovered to over the $3,000 mark.

KOINs or chips?

Cryptocurrencies have had a strong performance so far in 2021. The Innovation Shares NextGen Protocol ETF [KOIN] gained 15.6% in the year to date (through 13 August). As of 13 August, Nvidia is the fund’s top holding with a 4.38% weighting, signifying its integral position in the crypto ecosystem.

However, there are signs that its crypto business might be a drag on Nvidia’s all-round computer chip business. Not only did its gaming arm bring in a record $2.76bn last quarter, but the Innovation Shares NextGen Protocol ETF has been outperformed by a semiconductor ETF, in which Nvidia is a major holding. The VanEck Vectors Semiconductor ETF [SMH] gained 20.2% in the year to date (through 13 August). Nvidia is the fund’s second-largest holding with a 9.7% weighting as of 31 July.

Both funds lag far behind the Nvidia share price in terms of this year’s performance so far, as well as over the longer term. The Innovation Shares NextGen Protocol ETF gained 33% over the trailing 12 months, lagging the VanEck Vectors Semiconductor’s 54.7% gains over the same period.