In recent days, Nvidia’s stock actions are going slightly better than expected. It has nothing to do with Bitcoin mining: the success is instead related to artificial intelligence.
Summary
Nvidia stocks and Bitcoin mining
Nvidia is one of the largest producers of computer graphics cards in the world, but it is also the leading producer of chips for artificial intelligence.
In the past, its very powerful graphics cards have been widely used in the field of crypto mining.
Initially, they were also used for Bitcoin mining, but they were later replaced by the so-called ASICs, devices designed to perform a single task, in particular the extraction of hashes.
Graphics cards, on the other hand, are designed to be used in computers mainly for gaming, so they have been completely replaced by ASICs for Bitcoin mining.
ASICs have greater computing power and efficiency precisely because they concentrate all their power on a single task. Graphics cards, on the other hand, while powerful, are less efficient in this respect, as they do not concentrate all their power solely on a single task.
In the field of Bitcoin mining, efficiency is extremely important, because lower efficiency means higher consumption, and therefore higher costs.
Since the final performance, and therefore the earnings, depend on computing power and not on consumption, if more electricity is consumed for the same number of hashes extracted, one ends up being less competitive than others, and since mining is a competition this means lower earnings or even losses.
However, graphics cards continued to be used for mining Ethereum until September 2022, when with the transition to Proof-of-Stake mining on Ethereum was completely replaced by staking.
Today they are still used for mining, for example of Dogecoin, Litecoin, Bitcoin Cash and Monero, as well as Ethereum Classic, but this is a much smaller use than in previous years.
The cost of graphics cards
In the past, until the transition of Ethereum to Proof-of-Stake, the most powerful graphics cards were in such high demand from the mining market that their prices had skyrocketed.
Many people were complaining about the fact that gaming video cards had inflated prices due to their use in crypto mining, but the problem solved itself when Ethereum switched to Proof-of-Stake.
Graphics cards have not been used for Bitcoin mining for several years now because they are too weak compared to ASICs, and for almost a year and a half they have not been used for mining ETH anymore.
Mining of alternative cryptocurrencies that still rely on Proof-of-Work, such as DOGE, LTC, BCH, XMR, ETC, etc., does not generate enough profits to have a significant impact on the demand for graphics cards.
In other words, it does not create a shortage of video cards on the market, because it absorbs too few compared to the quantities produced and marketed by manufacturing companies like Nvidia.
So starting from September 2022 the price of computer video cards has normalized.
Nvidia stocks and artificial intelligence, not just Bitcoin mining
A completely different story is the one that links Nvidia to artificial intelligence.
Professional machines that work using artificial intelligence need very powerful chips.
Nvidia over time has also specialized in this very promising field, becoming a dominant provider of hardware and software for this type of use.
The boom of artificial intelligence started last year with the launch of ChatGPT, and it doesn’t seem to be slowing down in the short term.
It is enough to say that in October 2022 the price of Nvidia shares dropped below $110, after reaching a historical high of almost $350 in November of the previous year, but during 2023 it recorded a new spectacular boom exceeding $500.
Practically from October 2022 to August 2023, it recorded a sensational +350% in just ten months. For a hardware manufacturing company, this is a truly anomalous result.
The doubts of 2024
However, doubts began to arise during the new year.
The company’s business model, and its production, remain very solid and promising, but it seems that a real speculative bubble has formed around the Nvidia stock on the stock market.
Indeed, on February 12th the price touched $750, with a further gain of 50% since August 2023.
In October of last year, two months after reaching $500, the price underwent a 20% correction dropping below $400. That healthy correction seemed to have dissipated the bubble risk, but instead starting from January 8th of this year, the price broke the $500 resistance and ended up reaching almost $750 the following month.
Many analysts believed that such a price level was unsustainable, especially when compared to the level of earnings, so much so that there were fears that yesterday’s release of the earnings data for the last quarter of 2023 could lead to a collapse.
The collapse did not happen.
Last Friday the price was still above $740, but on Tuesday at the reopening of the markets it had dropped below $680.
The earnings data were expected yesterday, and when they arrived they turned out to be better than expected.
Nvidia in the fourth quarter of 2023 recorded a total of 22.1 billion dollars in revenue, an increase of 7.28% compared to expectations. This represented an impressive 240% increase compared to the same period the previous year.
These data were released behind closed doors, so much so that in after-hours trading the price of Nvidia shares rose back to near $740 on Friday. In this way, it completely nullified the decline of recent days due to doubts about 2024.
