Nvidia Corporation (NASDAQ:NVDA) The dominance in the high-end GPU market for the last 50 years has not been contested, but its golden age seems to be paused by Ethereum’s expectations. switch From proof of work to proof of stake.Proof of The work allows individuals to mine using the GPU and requires a great deal of computing power. The new system is proof of stake and follows a mechanism that processes transactions and creates new blocks within the blockchain without the need for complex calculations. This shift eliminates the need to buy a GPU for crypto mining. Nvidia’s management believes it underestimates its exposure to GPU sales in the cryptocurrency mining market.
Nvidia believes it’s a sale with a firm belief that the company won’t be able to keep up with its high reputation. A recent 2022 Investor Day presentation outlines a description of Total Addressable Markets (TAM) that predicts revenue growth. Our numbers show that this TAM story is unlikely at best. We estimate that the move to Ethereum’s Proof of Stakes is likely to impact Nvidia with revenues of at least $ 500 million and up to $ 1 billion. Therefore, in the reality of the new market, we believe that Nvidia shares are at significant risk of sold out before the market price.
What Nvidia is telling you (not)
The US-based semi-giant has maintained leadership in the manufacture and design of computer graphics processors that operate via a graphics processing unit (“GPU”). Like most semi-products, GPUs form an integral part of our lives, including computers, PlayStation 5 graphics, and Ethereum mining on the blockchain. In fact, Nvidia has a variety of end markets such as games (45%), data centers (41%), professional visualizations (8%), automobiles (2%), and destination brand supplies (3%).
Innovations and technologies in all these sectors have integrated the Nvidia name and further integrated Omniverse, Hooper Data Center GPUs, and Grace ARM-based CPUs. However, the company’s expected future share price cuts are not the result of technical shortcomings, but the lack of transparency with investors regarding their exposure to cryptocurrency mining demand.
The growth outlined in GTC 2022 is based on outdated end-market demand and successfully circumvents its relationship with Nvidia’s crypto mining. Nvidia’s revenue presentations over the last 12 quarters haven’t mentioned their exposure to GPU sales related to crypto mining. Investors believe they underestimate Nvidia’s cryptocurrency mining exposure at risk.
The link between Nvidia and Crypto mining is well established
The link between Nvidia and crypto mining is not a secret. The only way to mine Ethereum is to use a GPU, the best GPU is from Nvidia. The two have been married in ascending and descending since 2017. Therefore, the decline in the Ethereum 2018 hash rate correlates with the decline in NVDA inventory for fiscal year 2019. This was seen again last year (2021). Cryptocurrency-related sales declines affected Nvidia’s stock earlier this year, resulting in a 27% decline in January 2022.
Nvidia slipped into the same position again, and we know the secret of the future. The following graph shows how Nvidia’s stock price correlates with Ethereum’s price.
Stock price performance
Nvidia stocks are another pandemic favorite. Inventories have increased by 223% since the pandemic began around March 2020. Specifically, NVDA inventories increased 122% in 2020, 125% in 2021, and decreased about 26% in YTD. The decline in expected earnings due to the decline of Crypto Mining has not been priced, so it is likely that inventory has not yet declined. Therefore, it is expected to fall further from the current inventory level. The following graph shows Nvidia’s performance over the last two years.
Nvidia is very much appreciated. Shares are currently trading at around $ 218 per share. Nvidia is relatively expensive and trades 15.3 times more EV / C 2022 than the average 5.1 times that of its peers. On a P / E basis, it is trading at $ 5.53 at C2022EPS, which is 39.4 times higher than the peer group average of 17.4 times.
Even with growth adjustments, we believe Nvidia is expensive. On a growth-adjusted basis, Nvidia is trading at 0.7x. We believe that earnings and EPS estimates are at risk as the cryptocurrency mining market slows down imminently. Given the imminent decline in cryptocurrency mining demand and the negative shift in demand signals from computers, consumers, and telecommunications OEMs, we believe NVDA’s reputation is too high. The following graph shows the rating of Nvidia’s peer group.
Wall Street Words
Market consensus is driving strong purchases of Nvidia shares, accounting for 81% of sell-side valuations, with the rest being neutral / hold valuations. The overwhelming buying consensus is a natural result of investor confidence after Nvidia’s GTC. Nvidia’s average price target is $ 338, but the median is around $ 350.
We do not believe that sell-side is pricing a slowdown in demand from the crypto mining business. The following chart shows sell-side ratings, price targets, and upside potential.
What to do with stocks
Investors are encouraged to sell NVDA at their current level. Cryptocurrency mining GPU demand and pandemics used to boost earnings, but both are expected to be no longer a factor in the second half of 2010. This is expected to decline sharply, which seems inevitable, especially as Nvidia is reluctant to allow exposure to cryptocurrency mining demand.