Please ensure Javascript is enabled for purposes of website accessibility

NVIDIA Doesn't Want Cryptocurrency Miners to Buy Its Gaming GPUs

By Leo Sun - Feb 25, 2021 at 7:45AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The chipmaker doesn't want speculative miners to disrupt its core business again.

NVIDIA (NVDA 1.22%) recently announced it would make its new RTX 3060 gaming GPU "less desirable" to cryptocurrency miners by cutting its hash rate -- which gauges its mining efficiency -- in half. NVIDIA will implement the change via the GPU's software drivers, which will detect and throttle the mining algorithm for Ethereum (ETH -4.68%) and other cryptocurrencies.

Ethereum is one of the few cryptocurrencies that can still be easily mined for a profit with mainstream gaming GPUs. Many other cryptocurrencies, including Bitcoin (BTC -3.63%), are now tough to mine profitably without a high-end ASIC (application-specific integrated circuit) miner.

It might seem odd for NVIDIA to discourage miners from buying its GPUs, but this disciplined approach makes sense if you recall what happened to the chipmaker back in 2017 and 2018.

A line of GPUs plugged into a cryptocurrency mining system.

Image source: Getty Images.

What happened to NVIDIA last time?

Prices of cryptocurrencies soared throughout 2017, and a flood of new ICOs (initial coin offerings) hit the market. Many of those coins could be mined with NVIDIA and AMD's (AMD 1.68%) gaming GPUs.

Those speculative miners bought dozens of cards at a time, which drove up market prices and caused PC gamers to postpone their upgrades. But after the bubble popped in 2018, the same miners dumped their used GPUs and flooded the market with cheap cards. To NVIDIA's chagrin, many PC gamers bought those secondhand cards instead of its newest GPUs.

NVIDIA's GPU sales surged in fiscal 2018 (which ended in January 2018) and throughout most of 2019. However, its total revenue then declined year over year for four straight quarters -- from the fourth quarter of 2019 to the third quarter of 2020 -- as it grappled with the glut of secondhand mining GPUs.

Growth (YOY)

FY 2017

FY 2018

FY 2019

FY 2020

9M 2021

GPU Sales

9%

39%

40%

(7%)

22%

Data source: NVIDIA. YOY = year over year.

NVIDIA gradually resolved those issues throughout fiscal 2021, as many speculative cryptocurrencies either faded away or became unprofitable to mine with gaming GPUs. Robust demand for its new RTX GPUs throughout the pandemic and strong sales of its high-end data center GPUs amplified that recovery.

However, NVIDIA likely realizes that the rising price of certain cryptocurrencies, including Ethereum -- which surged nearly 600% over the past 12 months -- could cause miners to hoard its newest GPUs again.

So instead of being caught off guard again, NVIDIA is proactively making its GPUs unattractive to miners -- which could prevent another bubble from forming and disrupting its sales of GPUs to PC gamers.

But isn't NVIDIA leaving money on the table?

NVIDIA's revenue from cryptocurrency-specific mining products hit $273 million in fiscal 2018 and $306 million in fiscal 2019. Those figures only account for low-single-digit slices of NVIDIA's top line, but they only included chips that were directly sold for professional mining devices and excluded all the gaming GPUs sold to amateur miners.

NVIDIA's GPU sales in fiscal 2018 and 2019 suggest the actual percentages, which are impossible to track and calculate, were much higher. But NVIDIA isn't completely abandoning the cryptocurrency market. Instead, it's launching a new line of CMP (cryptocurrency mining processor) products that are optimized for mining. These CMP products will consume less power and lack display ports, which clearly separates them from NVIDIA's main GeForce GPUs for gamers.

NVIDIA believes this rigid separation will prevent another bubble from forming within its gaming GPU business while enabling it to maintain a foothold in the volatile cryptocurrency mining market.

The right move at the right time

NVIDIA's decision will inevitably frustrate cryptocurrency miners, but it's a smart move that sacrifices a short-term bump in crypto-related sales for the long-term stability of its gaming business. AMD is also reportedly developing a dedicated GPU for cryptocurrency mining, and it would be wise to adopt a similar throttling strategy for its Radeon GPUs.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

NVIDIA Corporation Stock Quote
NVIDIA Corporation
NVDA
$168.98 (1.22%) $2.04
Advanced Micro Devices, Inc. Stock Quote
Advanced Micro Devices, Inc.
AMD
$95.07 (1.68%) $1.57
Bitcoin Stock Quote
Bitcoin
BTC
$29,362.56 (-3.63%) $-1,105.04
Ethereum Stock Quote
Ethereum
ETH
$1,972.46 (-4.68%) $-96.77

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
330%
 
S&P 500 Returns
115%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/24/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.