Nvidia is on a winning streak. The red-hot maker of graphics chips used for videogames, artificial intelligence and cloud computing surpassed Intel last year to become the most valuable US chip maker. And the good news keeps coming.
This week, Nvidia’s stock price reached a new record after it announced that all of its product lines were exceeding expectations for the current quarter. Investors also applauded when Nvidia said on Monday it would enter the CPU business, a major new market for the company.
Not everyone is cheering, though. PC gamers desperate for chips are struggling to get them. Part of the reason is a global semiconductor shortage. Another part is that cryptocurrency miners are buying them up instead.
Anecdotally, it has become nearly impossible for an average person to buy an Nvidia graphics card unless they’re willing to pay triple the list price. The supply-demand imbalance has got so bad that US PC online store Newegg is resorting to conducting lotteries several times a week just for the chance to buy a card at a 60% mark-up. Frustrated gamers are flooding online message boards with angry posts over price gouging and lack of availability.
To be sure, much of the demand is still coming from regular gamers who want to play the latest titles with the highest graphical performance. On Monday, the company downplayed the role of crypto buyers during its investor day presentation. But the continued surge in cryptocurrency prices is clearly exacerbating Nvidia’s shortages.
Miners vs gamers
Crypto enthusiasts use graphics cards to “mine” new coins by doing computational work to validate transactions for digital currencies. Unfortunately for PC enthusiasts, Nvidia’s products are well suited for mining ether, the second most popular cryptocurrency after bitcoin. The price of ether has quintupled since November, making mining much more profitable. That’s spurred the pervasive use of computer-shopping bots to purchase Nvidia graphics cards from e-commerce stores before humans can click the “buy” button.
More enthusiastic customers sounds like good news for the chip maker, but there’s a problem: Crypto mining demand is unpredictable and may not be sustainable. These buyers tend to take flight as soon as coin prices drop. Back in 2018, surging ether prices similarly led to graphics card shortages. When the price of cryptocurrency collapsed later that year, miners flooded the second-hand marketplaces with used cards, hurting Nvidia’s business. In late 2018, the chip maker’s stock price sank after it surprised investors with financial guidance significantly below Wall Street expectations.
History doesn’t have to repeat itself if Nvidia acts quickly. The company has already taken some steps to try to ensure supply for gamers. It recently launched new products without display outputs specifically made for mining. It has also installed special software for one of its cheaper cards that cuts the efficiency for ether mining in half, making it less attractive for non-gamers.
But while specialised mining cards help on the margin, the volumes are relatively small. And miners often prefer normal gaming cards for their better resale values. Nvidia will need to go further to impede mining demand for its products if it wants to make a big impact. Instead of just one card, it should make permanent hardware and software changes to lower mining efficiency across its entire line-up. The company could also work with retailers to find creative ways to stop the shopping bots, such as limiting orders to one per household or billing address.
To stay on top, Nvidia should serve its best customers — not because they deserve more sympathy than the profiteering crypto miners, but because it’s good insurance for the next crash. — By Tae Kim, (c) 2021 Bloomberg LP