Cryptocurrency Mining Remains A Solid Tailwind For Nvidia

Ignore the skeptics, GPU-based cryptocurrency mining is not slowing down. As long as the price of Ether is trading above$340, GPU-centric cryptocurrency mining will continue its upward momentum. Like Advanced Micro Devices (AMD), Nvidia (NVDA) greatly benefited from the big surge in video card-centric cryptocurrency mining. Ethereum mining’s rapid rise in popularity starting last April is why Q2 2017’s posted a 34.9% Y/Y rise in discrete GPU (Graphics Processing Unit) shipments. Q2’s global GPU shipment was also sequentially 30.9% higher.

The chart below is from Jon Peddie Research. NVDA investors should really be thankful for Ethereum’s surge. It boosted the sales of GPUs. Ethereum was a beautiful anomaly because, for all previous years, Q2 was always a down time for GPU sales. Ethereum mining was contributed why Nvidia’s posted record revenue of $2.23 billion (up 56% Y/Y) in Q2 FY18.

Some are cynical about the long-term boost that cryptocurrency mining can give to GPU vendors like Nvidia. However, the best argument that cryptocurrencies are in for a long haul is because they are almost impossible to tax. Smart people love mining and trading crypto currencies because no taxation-obsessed government employee can take away the profits. Somebody made $200 million trading Ethereum and it was a tax-free windfall.

Why Ethereum Is Not a Decelerating Tailwind

Technical analysis already confirmed that Ether is on an upward trend against Bitcoin and the U.S. dollars. The chart below also clearly illustrates that Ether’s price hit $350 earlier today. This GPU-friendly cryptocurrency’s price was less than $56 in late March. Unlike Bitcoin, Ethereum’s mainstream popularity only started last April, it still has a long leeway to grow.

CoinDesk.com’s chart below shows Ethereum’s market cap is now $33 billion. This makes it the second most valuable cryptocurrency. Nvidia has clear long-term benefits from Ethereum’s rise to a $33 billion market cap. Going forward, miners are going to buy more and more GPUs because, like Bitcoin, there’s only a limited amount of Ether that is going to be released(currently at 15.6 million Ether/year). Unlike the paper money that can be printed limitless by governments, there’s also a set limit on how many Ether can be released. I do not know yet the limit for Ether but I know 21 million BTC is the maximum limit for Bitcoins.

(Source: CoinDesk)

As more people get involved in Ethereum mining, the difficulty curve correspondingly increases. Consequently, miners will continuously have a greater need to buy more GPUs if they want to improve their mining rate. Etherscan.io’s block difficulty growth chart illustrates just why buying more GPUs is now more important for Ethereum miners. The more Nvidia GPUs a miner has, the faster he can mine Ether.

(Source: Etherscan)

Nvidia’s Pascal GPUs are rated the best when it comes to Ethereum mining. The mid-range GTX 1070 is currently the most efficient for mining Ether. Based on HotHardware’s tests, Nvidia’s own brand of GeForce GTX 1070 can mine Ether as good as MSI’s GTX 1080 Ti X 11G. Nvidia’s Founders Edition version of GTX 1070 is more economical because it uses much less electricity than the GTX 1080 Ti.

(Source: HotHardware)

The demand for cryptocurrency mining is not going to slow down because or order backlog. There’s still a persistent global shortage of gaming GPUs due to Ethereum miners. Enthusiastic miners are still pushing GPU prices well above their recommended retail prices. The 2016 recommended retail price for the 8GB GDDR5 GTX 1070 was $379. It currently sells online for $549.94.

Nvidia sells its own Founders Edition GPUs. It can prioritize production of its own GTX 1070 GPUs and directly reap the extra $100-$150 margins. Nvidia is also releasing a dedicated crypto-currency mining GPU (it cannot be used for gaming). The purposely-built cryptominer Nvidia P-106-6G is going to deliver 36% better hash rate than current Nvidia gaming video cards. This product should see strong demand from Ethereum miners.

(Source: ASUS)

Anticipating stronger demand for GPU-centric crypto-mining, Asustek has already launched its new B250 Mining Expert crypto motherboard. It can support up to 19 GPUs. The Asus B250 beats the record 13-GPU support of Asrock H110 Pro BTC+. The fact that motherboard companies are competing in building motherboards with more and more

The fact that motherboard companies are competing in building motherboards with the most PCie slots (to host GPUs) reinforces my thesis that cryptocurrency is not a decelerating tailwind for Nvidia.

Cheaper Electricity Is Also Favorable To Cryptocurrency Miners

Many Ethereum miners are willing to pay high prices for GPUs because some of them have access to cheap electricity. Based on my forum squatting, cryptocurrency industry leaders are mostly from China and Russia because they have the world’s cheapest electricity rates. Russia has a lot of oil, gas, coal, and nuclear plants. China is the world’s largest producer of solar energy.

(Source: Ovo Energy)

Continuing decline in solar photo-voltaic cells means it is getting more affordable for cryptocurrency miners to build solar farms for their Ethereum/Bitcoin set-up. Bitcoin/Ethereum prices can suffer a rollercoaster experience in price changes but miners can still make a profit if they use cheap renewable energy.

Electricity is very expensive here in the Philippines but people are buying Ethereum rigs because they use China-made solar panels for them. A computer shop in my province builds custom mining rigs with Nvidia GPUs. A setup with 8 GTX 1070 GPUs costs 250,000 pesos (around $5,000). I tried to order a mining rig but there’s a very long waiting list due to the persistent short supply of GTX 1070 video cards.

(Source: Motek Moyen/Double-K PCshop)

Conclusion

NVDA is a buy. Tax-free gains from crypto currencies, an existing backlog of GPU orders, cheap renewable energy, and consistently high prices for Ether are good reasons why cryptocurrency is not a decelerating tailwind for Nvidia. The strong demand for GPUs from cryptocurrency miners is largely why Nvidia’s Gaming segment posted a Y/Y growth of 51.85% in Q2 FY2018.

The strong demand for GPUs from cryptocurrency miners is largely why Nvidia’s Gaming segment posted a Y/Y growth of 51.85% in Q2 FY2018. Unless Ether’s price goes back to $60, I don’t see why this trend will not continue for the next quarters.

(Source: Nvidia)

Nvidia has the best Ethereum mining GPUs right now so it is the bigger beneficiary (not AMD) of cryptocurrency mining. The economic benefit of this new craze over Ethereum is now only reliant on how fast Nvidia’s foundry/manufacturing partners can build and replace the always out-of-stock GTX 1070/GTX 1060 GPUs.

Lastly, Ethereum isn’t going to be the last GPU-only cryptocurrency. There will be other GPU-friendly cryptocurrencies that will be built and massively promoted. As of today, GPU-friendly currencies Litecoin, Dash, and Monero are also among the top cryptocurrencies.

(Source: Coin Market Cap)

Nvidia’s long-term benefit from cryptocurrency mining is insured. Other programmers/financiers/speculators/manipulators will build-up another $50 billion cryptocurrency. Unlike gold, diamonds, and oil, cryptocurrency is an infinite resource that could be mined over and over. It will really be to the best welfare of Nvidia if it influences the cryptocurrency trend to favor GPU mining, not ASIC.

Disclosure: I am/we are long AMD, NVDA.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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