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The Ratings Game: Nvidia is trying to prevent another ‘crypto hangover,’ and analysts think it’s a ‘smart move’

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Nvidia Corp. shares did little Thursday despite a record-breaking quarter and outlook, as analysts focused on the company’s steps to avoid another “crypto hangover” after the latest boom.

Nvidia
NVDA,
-0.72%

shares traded between a 1.6% decline and a 0.3% gain Thursday morning after the company set new sales records for the quarter and promised to break those in three months. For the current quarter, Nvidia forecast revenue between $6.17 billion and $6.43 billion, the high end nearly $1 billion above the pre-earnings consensus of $5.47 billion from Wall Street analysts surveyed by FactSet. The consensus was raised to $6.2 billion by Thursday morning.

See: Crypto boom is just the icing on top of a sweet year for Nvidia

“In our data-center business, right now our product lineup couldn’t be better,” Colette Kress, Nvidia’s chief financial officer, said on Wednesday’s conference call. “We’ve made a deliberate effort on the gaming perspective to supply to our gamers the cards that they would like given the strong demand that we see. So that will also support the sequential growth that we’re receiving.”

More than half the analysts that cover Nvidia boosted their price targets in reaction to the report, but their big focus was on how Nvidia sought to avoid a huge problem it experienced about three years ago. In late 2018, both Nvidia and Advanced Micro Devices Inc.
AMD,
-0.45%

were plagued by so-called “crypto hangovers,” when demand for gaming cards evaporated as a flood of second-hand ones flooded the market because cryptocurrency prices had cratered and miners were selling off their rigs.

For more: ‘Crypto hangover’ has Nvidia staggering into holidays with a big headache

Now, with cryptocurrencies like bitcoin
BTCUSD,
+1.74%

and ethereum
ETHUSD,
+0.07%

still trading at eye-popping gains compared with a year ago, Nvidia has taken a few crucial steps not only to avoid another crypto hangover, but to free up the current short supply of gaming cards for gamers rather than crypto miners.

Nvidia tweaked the performance of its new gaming cards to make them specifically less attractive to miners, and launched a chip designed just for cryptocurrency mining, known as cryptocurrency mining processors, or CMP. CMPs accounted for $155 million in sales in the first quarter, and are expected to tally $400 million in sales in the current quarter, according to Kress.

Raymond James analyst Chris Caso, who has a strong buy and a$750 price target, said Nvidia addressed two big concerns in that data center growth was still strong and that “a fear that crypto revenue was unsustainable.”

“We think the company made a smart move by both diminishing the mining capability of new gaming boards, yet increasing supply of mining specific CMP boards,” Caso said. “Investors had several worries on mining demand— that the revenue wasn’t sustainable, that a drop in mining would flood the market with used cards, and that it was impossible to tell the difference between sustainable gaming demand and cyclical mining demand.”

Susquehanna Financial analyst Christopher Rolland, who has a positive rating and hiked his price target to $720 from $700, said Nvidia bulls were maybe looking for even more from data-center sales.

“Gaming is clearly hitting on all cylinders right now, and we would expect strength to persist for the foreseeable future as the company appears significantly backlogged and has yet to replenish an almost empty channel,” Rolland said. “While data center bested the Street, achieved record Inference GPU shipments, and broke the $2 billion quarterly rate for the first time, the magnitude of the beat was perhaps a bit less than the bulls were hoping for, a negative.”

In a note entitled, “Walking on Sunshine,” Evercore ISI analyst C.J. Muse, who has an outperform rating and raised his price target to $750 from $675, said the results and outlook position Nvidia as “THE AI Compute Company.”

“All eyes remain on sustainability of gaming in a crypto world and path to reacceleration of growth in the data center,” Muse said. “To this end, mgmt. guided both gaming and DC revenues to move sequentially higher through the year, leading to overall company revenues also moving higher through the year – and importantly, we believe this commentary remains in place even if CMP revenues are zeroed out in the back half.”

Of the 42 analysts who cover Nvidia, 36 have buy ratings, five have hold ratings, and one has a sell rating. Of those, 21 raised their price targets, while one trimmed theirs, resulting in an average of $698.86, up from a previous $666.91, according to FactSet.

Over the past 12 months, Nvidia shares have climbed 83%, while the PHLX Semiconductor Index
SOX,
+0.92%

has gained 71%. Meanwhile, the S&P 500 index
SPX,
+0.34%

has risen 38%, and the Nasdaq Composite Index
COMP,
+0.22%

has grown 46%. The company recently announced its first stock split in 14 years after massive gains. Nvidia shares last closed at a record high on April 15 at $645.49.

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