Nvidia (NASDAQ: NVDA), one of the world’s leading manufacturers of semiconductors has witnessed a decline in the sales of processors used for the mining of cryptocurrency according to the financial results released for the fourth quarter of 2021.
Possible Reasons For The Drop In Demand
From the results, revenue dropped by approximately 77% from over $105 million to about $24 million. Possible factors that may have driven the sharp price drop include shifting attention from cryptocurrencies that are based on proof of work to proof of stake assets that are energy efficient.
This drop could mean bad news for the chip making company as this may pave the way for its competitors to take charge of the market. The decrease is coming at a time when competitors such as Intel have decided to enter the mining ecosystem. According to Intel, its latest microprocessor is a thousand times faster and more efficient compared to the chips used before which is SHA-256.
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Another reason the processor giant gave for the reduced demand for its product is crypto volatility. According to the company, volatility in the crypto market, as well as price fluctuations, can reduce demand for its product. Also, the method of verification for transactions like proof of stake or proof of work can affect usage and demand. These factors also make it difficult for the company to estimate the loss.
Nevertheless, the processor company is positive that there will be a huge demand for its processors to mint NFTs (non-fungible tokens).
Market Analysis For 2021
Generally, the sales of the company last year were below expectation even though it started on a good note. For instance, during the second quarter of the year, the estimated sales ought to be $400 million but only $266 million was realized. By the third quarter of the year, the sales dropped to about $105 million.
The market penetration strategy used by the organization to enter the mining sector was to develop processors that would lower demand from crypto miners using Nvidia’s GPUs (Graphics Processing Units). It is worthy of mention to say that the organization tried to limit its GPUs by making them in such a way that miners are not attracted to them. The company even stated that virtually all its products will come with a hashrate limiter that will stop miners from using them.
Although the company’s revenue fell below expectation, its 2021 income skyrocketed by over 61% to $12 billion.
The Effect On NVDA
Positive results have been one of the drivers of Nvidia’s stock recently. However, the stock price can increase if the demand for chips globally increases.
According to the report from Finbold, Nvidia’s stock price could reach about $350 by the end of this year. Presently, the stock is trading at $252, recording a 5% drop over the last 24 hours.
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