As ethereum moves away from GPU mining intensive proof-of-work consensus and transfers over to minimal GPU use in proof-of-stake, miners are looking to sell off their GPUs into the market, destroying demand for Nvidia GPUs.
Nvidia has just pre-announced its earnings for Q2, and they are looking extremely bad indeed. Quarterly revenue is predicted to be $6.7 billion instead of the $8.1 billion guide. Non-GAAP midpoint margins are 46.1% instead of the 67.1% guide. Gaming revenues are $2.03 billion — down 44% QoQ.
According to an article on Seeking Alpha, Nvidia is now likely to report significantly lower earnings than expected for both Q3 and Q4 this year. Cryptocurrency-related sales have driven Nvidia’s earnings over time, and the fact that ethereum, hitherto the most valuable crypto for GPU-powered mining, is moving to proof-of-stake, is a punch in the solar plexus for the company.
The ETH 2.0 merge is due to take place as early as September this year when the proof-of-stake code receives its final testing on mainnet. All being well, the mainnet will merge with the Beacon Chain and the transition to proof-of-stake will be complete.
Boom time for ethereum mining GPUs will be over, and Nvidia, and all its partners will need to try and sell inventory at the same time that miners are also dumping their no longer needed machines into the market, meaning that demand for Nvidia GPUs will drop off a cliff.
According to the article on Seeking Alpha, “the pain for investors has barely started.” It surmises that the continuing high valuation for Nvidia stock is because of the Russia/China demand factors. However, it states that the disappearance in the market of Ethereum GPUs will more than cancel out any potential demand here.
“a lofty valuation may be unsustainable, especially with the Federal Reserve tightening aggressively. Investors should avoid the stock and wait for it to come down to a reasonable valuation before buying. Nvidia is a great company, but the deteriorating fundamentals do not justify the valuation.”
Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.