What happened
Shares of Nvidia (NVDA -10.01%) were trading down almost 3% after the market open on Monday after Morgan Stanley cautioned investors about the potential for slowing demand in graphics processing units (GPUs). As of 12:32 p.m. ET on Monday, the stock had recovered but was still down 1.4%, with the Nasdaq Composite down 0.4%.
Morgan Stanley believes Ethereum's planned shift to a proof-of-stake model could slow demand for GPUs that are used to mine cryptocurrencies. This could have an impact on near-term demand for Nvidia's GeForce GPUs that have been used in crypto mining, although it's not clear how much of Nvidia's gaming revenue is coming from the cryptocurrency market.
So what
Nvidia has reported robust growth in its gaming segment over the last year. In the most recent quarter, the gaming business grew 31% year over year, totaling nearly half of the company's total revenue. Since 2018, Nvidia has moved to dampen sales of its gaming GPUs to crypto miners with the release of Cryptocurrency Mining Processors. But the company still doesn't know exactly how much revenue is coming from crypto-related sales.
In the fiscal first-quarter earnings call, chief financial officer Colette Kress said, "The extent in which cryptocurrency mining contributed to gaming demand is difficult for us to quantify with any reasonable degree of precision."
Kress also mentioned that the reduced pace of increase in Ethereum's hash rate means that it likely reflects lower mining activity on GPUs. As a result, management expects a lower contribution from mining.
Now what
Nvidia might see slowing growth from gaming over the next year as it laps difficult growth comparisons. Still, management believes its gaming segment is facing a $100 billion long-term addressable market, which provides plenty of room for more growth over the next decade. The gaming segment is currently operating at an annual revenue run rate of just $14 billion.
