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Nvidia did not have a good week. The group announced a profit below Wall Street's expectations on Thursday and on Friday, the company's share price fell by 18%, a market value of $ 23 billion and a value of $ 99 billion.
The reason? Cryptographic miners stopped buying graphics cards, resulting in an inventory bubble for Nvidia's mid-range Pascal graphics cards. It may take a quarter or two minutes to eliminate the stock bubble. Thursday afternoon, I spoke to Jensen Huang, CEO of Nvidia, who was puzzled by the reaction to the shortfall, which included a charge of $ 57 million related to "post-crypto loss".
In a call to analysts, Nvidia said that Pascal's mid-range game cards had an anomaly, in which channel prices and inventory levels remained higher than expected. When prices finally fell, the demand for graphics cards did not increase as quickly as expected. Huang said during a call for results that it was a surprise.
Rather than sending more cards into the flooded canal, Nvidia expects, waiting for the sale of the channel cards. Huang said it could take a quarter or two, partly because he does not know how much of his rival, Advanced Micro Devices, has competed with Nvidia.
In October, AMD also announced lower-than-expected graphics chip sales, resulting in a 22% drop in share prices. And Nvidia said it would reduce expectations for game-related graphics card sales from $ 1.7 billion a quarter to about $ 1.1 billion. It's a big drop.
All of this is happening while Nvidia is trying to offer its new high-end RTX graphics cards, and that's not easy, as only one game, Battlefield V, leverages the built-in real-time ray tracing in the game. Turing architecture. uses. I have tried to analyze what happened during a conversation with Huang.
Here is a transcript of our interview.
Above: Jensen Huang, CEO of Nvidia, presents the Nvidia GeForce RTX 2080 Ti at Gamescom 2018.
Image credit: Nvidia
GamesBeat: I do not know if it bothers you, but it's a big change in your stock price after hours of work.
Jensen Huang: Well, I can not control my stock price. And so – no, no, just look beyond. We need to focus on things we can control. I would say that then, Q2 was pretty good in that perspective. The encrypted hangover is surely a surprise, with how long it will last. It was a surprise.
GamesBeat: I wanted to try to get a little into the subject and make it more understandable for people. I was saying – if all these people were enthusiastic about cryptography and started mining and that started to explode around December 2017, when the price of bitcoin went down, those who were buying all that mining GPU equipment – it may be 11 a few months ago, they started to no longer need their GPUs. I wonder why the overhang comes so far back in time now that you are surprised by something happening on the market.
Huang: You have mistaken dates. In fact, crypto was solid even during a lot of Q2.
GamesBeat: But I think people extract a lot of things out of Bitcoin. They were trying to rotate
Huang: But we have never been in the Bitcoin business. We are at Ethereum. We are in the alternative points. Ethereum was still red in May and June.
GamesBeat: This thing happens where it is also exploited, right? You get diminishing returns on the mining sector at the same time as the price goes down. I guess there is a kind of double effect. And then, these people end up selling all their belongings on the secondary market. "I'm going to sell all my GPUs in excess." And that makes these things continue to happen, this cascading effect.
Huang: Yeah, I do not know. That's – I do not know if the inventory comes from resale. The inventory is just from fresh produce. There is a lot of fresh produce in the canal.
GamesBeat: I also thought that it never accounted for more than one-tenth of your income. It surprises me that it can come back and have this bigger effect.
Huang: Because it's not just my inventory. It's also the inventory of AMD. I think the part we did not estimate is the amount of inventory put in place in the channel.
Above: View the realistic reflection on the side of the car in Battlefield V with Nvidia RTX.
Image credit: Nvidia
GamesBeat: There are so many things to deal with collectively, though, every quarter, it does not seem to be such a big part of anyone's income.
Huang: What I mean, is that we simply do not know: when we analyze what we consider our own sales and what is the percentage of Bitcoin in our own sales, we do not know at what level stocks were introduced the chain. We have no way of calculating that.
GamesBeat: How can we get bigger numbers that affect quarterly results? Again, it seemed, in the past, that it was described as a small portion of revenue and that it is now something that can affect stocks for one or two quarters. It's hard for me to understand why it makes a big difference.
Huang: Let's take a moment – let me just – the 1060 is the world's best-selling graphics processor, and the 580, the number 24. The demand for games is such that the demand is relatively low. If they decide to build a whole set of GPUs, 580, for crypto, then transfer them to the channel, the market would be disproportionate. Usually we would see – call it 90% and 10%. Suddenly, the inventory in the channel could be very different. It could be 50% them and 50% us. Do you see what I say? But there are so many people writing about inventories, Dean. Why waste your life on this?
JeuxBeat: [laughs] I suppose?
Huang: You will be one of 74 people who will write about tomorrow's inventories.
Above: Nvidia's real-time ray tracing demonstration with Captain Phasma.
Image credit: Nvidia
GamesBeat: I'm just trying to figure out how this translates into a $ 20 billion stock price swing.
Huang: It should not! It should not! I know! It should not! Here. I think it's more magical. Where does it end, who knows? I think it's as surprising to the shareholders as it is to us. But that will work out. Our data center business is doing well. I believe that the future of the game is still good. Our company is doing well. Our autonomous car business is doing well. These things will eventually be settled.
GamesBeat: And the Battlefield V players are happy.
Huang: Yeah yeah. [laughs] Exactly.
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