What Caused Nvidia’s Shortfall? Gamers or Crypto Mining?

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Nvidia has been hurt by fading pandemic-era demand for gaming graphics cards.

Justin Sullivan/Getty Images


warned on Monday that shortfalls in its gaming segment revenue would hamper second-quarter results. Analysts were left wondering how much can be blamed by a drop in demand from gamers, compared with cryptocurrency miners.

The company said its preliminary second-quarter revenue was $6.7 billion, well below its outlook for $8.1 billion. The firm pointed to a 44% quarter-over-quarter decline in gaming segment revenue to $2.04 billion.

“Our gaming product sell-through projections declined significantly as the quarter progressed,” CEO Jensen Huang said. “As we expect the macroeconomic conditions affecting sell-through to continue, we took actions with our Gaming partners to adjust channel prices and inventory.”

Barron’s warned in April that


stock could suffer as pandemic-era demand for gaming graphics cards faded, especially if crypto miners looked to unload high-end cards as they prep for the Ethereum blockchain network’s migration to a “proof-of-stake” model from “proof-of-work.” The transition, which hasn’t yet happened, would mean graphics cards are no longer needed for ether mining. Industry observers have noticed an uptick in promotions for high-end graphics cards that were once excessively marked up and sold well above MSRP.

news release, which the company declined to comment beyond, didn’t mention a pullback in demand from cryptocurrency miners, but Raymond James analyst Melissa Fairbanks notes that the estimated 44% quarter-over-quarter drop was similar in magnitude to a pullback that lined up with 2018’s crypto crash.

“As such, we believe that while there is considerable negative sentiment around consumer spending, this current reset should reflect something of a ‘clear the decks’ scenario after a period of exceptionally strong demand,” Fairbanks wrote.

That is not to say gaming spending is trending up. Earlier this month, research firm NPD group said overall consumer spending on videogaming in the U.S. fell 13% year over year to $12.35 billion during the second quarter.

“Higher prices in everyday spending categories such as food and gas, the return of experiential spending such as travel and attending live events, a lighter release slate of new games, and continued new generation console hardware supply constraints were all likely contributors to the decline seen in the second quarter,” Mat Piscatella, games industry analyst at The NPD Group, said in a news release.

Such trends could also impact spending on gaming cards, especially after many consumers upgraded their computers during the pandemic, essentially pulling demand forward. After the close on Monday, videogame publisher

Take-Two Interactive Software

(TTWO) also missed analyst expectations for adjusted earnings as the company warned macroeconomic concerns were impacting results.

Fairbanks cut her price target to $240 from $250 but maintained a Strong Buy rating. While she slashed her near-term expectations, she thinks the firm will benefit from long-term growth in its datacenter, auto and software businesses. Nvidia stock fell 6.3% to $177.93 on Monday.

“Importantly, Datacenter revenue reached another record high, and while sales were slightly below original expectations, the shortfall there was related entirely to supply constraints, rather than weakening demand,” she wrote.

Write to Connor Smith at connor.smith@barrons.com

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