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Crypto has facilitated a whole new industry. But this rise in new assets is also making a serious dent in other established industries, from finance to art and well in between.
The chip industry has also felt the impact; The demand for GPUs has reached new highs as they are used to mine digital currencies. This has been a boon for Nvidia (NVDA), as the inordinate demand has added another significant source of revenue. But now that the crypto bull run is drawing to a close, investors are worried about what the possible lack of demand could mean for the GPU giant.
Evercore analyst CJ Muse doesn’t think there is any major reason to worry about.
Despite growing crypto concerns and current supply constraints, we believe investor fears for NVDA gaming business are vastly exaggerated, as we believe the true demand for games remains vastly underestimated, said the 5-star analyst.
That’s not to say crypto earnings need to be sniffed. Ex-CMP (Crypto Mining Processors) for 2H20 + CY21, Muse estimates crypto-related revenue to be around $ 1.2 billion. However, as Ethereum moves to a PoS (Proof of Stake) consensus mechanism, by the end of CY21 these will likely cease and some miners will unload these GPUs into the channel.
Is it a problem? Not necessarily, says Muse. Bottom-up analyst calculations indicate that $ 3.5 billion in pent-up gaming demand may more than offset any decline in crypto demand.
With that in mind, Muse expects gaming revenue in CY21 / CY22 to grow to $ 12.2 billion and $ 13.7 billion, respectively, 8% and 12% above consensus estimates. This should help the company generate EPS of $ 16.35 and $ 19.00, respectively, against Streets’ forecast of $ 15.32 and $ 17.09.
All of this leads Muse to believe that good times await Nvidia shareholders with or without crypto.
With the consensus line of sight, estimates are rising despite a slowdown in combined cryptography at the data center which is expected to re-accelerate at 2:21, followed by a next-generation architecture ramp at 2:22 (Lovelace) followed by a ramp of ARM server CPU at 1:23, and we see a clear path of positive catalysts to push stocks up, Muse summed up.
The story continues
That said, with stocks up 35% year-to-date, right now Muses’ price target of $ 750 only suggests around 7% up from current levels. The analysts’ rating remains an outperformance (ie a buy). (To see the Muses list, click here)
The gap between the score and the target price is also evident in the assessment of Muse colleagues. Barring a wait, the other 25 recent reviews point to Buy, naturally merging into a strong buy consensus rating. However, the increase remains capped; At $ 727, the average price target suggests stocks will gain a modest 3% over the next several months. (See the analysis of Nvidia shares on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the analysts presented. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
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