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Nvidia is a leading maker of graphics processing units, or GPUs.

Remus Rigo/Dreamstime.com

The impact of Bitcoin mining on Nvidia‘s gaming business may be slowing, prompting investment bank Piper Sandler to turn more bullish on the stock.

Analysts at the bank raised their target price for Nvidia (ticker: NVDA) from $225 to $260 Monday. Nvidia stock was around 1% higher in the U.S. premarket, after closing at $227.26 Friday. The shares have climbed more than 73% in 2021. The analysts cited a “more constructive” view on Nvidia’s gaming business as the reason for their more bullish outlook.

In a note, Piper Sandler’s Harsh Kumar and Matthew Farrell outlined how more graphics processing units (GPUs) could flow to the critical gaming market, which has been disrupted in the past by GPUs being scooped up by cryptocurrency miners.

GPUs are computer chips with applications in gaming machines. They can also be used to power Bitcoin mining devices, which are energy-intensive computers rewarded with cryptocurrency for solving complex mathematical problems. Higher Bitcoin prices increase the incentives for cryptocurrency mining.

Kumar and Farrell’s research scraped


eBay

(EBAY) for data on the selling price of GPUs in the secondary market as a premium to the manufacturer’s suggested retail price (MSRP).

They found that the relationship between Bitcoin prices and the premiums for GPUs in the secondary market was decoupling—particularly for Nvidia’s chips. In the past, when Bitcoin prices spiked, the value of GPUs sold on the likes of eBay similarly rose, indicating that the chips were headed for cryptomining and commanded lofty premiums for those in the gaming market.

GPUs are selling for between 1.5x and 2.5x MSRP in secondary markets, the analysts found—but that is far below the 2x to 3.75x MSRP range the units were selling at when Bitcoin prices were at similar highs in May.

The analysts found that a recent rise in Bitcoin prices has done little to affect the price dynamics for Nvidia GPUs in the secondary market. They said this may represent the relationship fading between Bitcoin and GPU prices, which would leave more GPUs to be sold for gaming purposes—where demand for the units is high and supply is tight, especially heading into the holiday season.

“For Nvidia specifically, the impact of cryptocurrency on the gaming business has been a hang-up for some investors,” Kumar and Farrell said. With supply of GPUs limited, more GPUs heading to the crypto sector than the gaming sector—as indicated by premiums in the secondary market—have the potential to damage Nvidia’s market share in gaming, which is a core business.

“If the decoupling does occur, we feel the gaming GPUs will be able to meet true gaming demand, instead of potentially being allocated to cryptomining,” the team at Piper Sandler said.

While the price of Bitcoin and other cryptocurrencies has skyrocketed over the past year—Bitcoin has jumped more than 380% in the last 12 months—many investors remain skeptical about the long-term outlook for cryptos. Cryptocurrencies have also proved to be extremely volatile, with intense price swings day-to-day.

“If the decoupling were to persist, we feel it would be a positive over the long-term, as it eliminates unwanted noise to the core business,” the analysts added.

Nvidia stock hit a record intraday high Friday above $231, and analysts including Kumar and Farrell are bullish on the technology company’s earnings, which are due to be released in November.

Write to Jack Denton at [email protected]

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