What happened

Shares of Nvidia (NVDA -3.22%) were falling more than the market on Wednesday, down 4.7% as of 12:36 p.m. EDT.

Nvidia has had quite an eventful few months and had some interesting news earlier this week, when the company unveiled a new slowed-down A800 processor adapted to comply with new regulations on high-performance chip sales to China.

But there was nothing much in the way of company-specific news today. More likely, today's larger-than-average decline probably had to do with Nvidia and tech stocks generally becoming collateral damage in the massive cryptocurrency bust we are seeing on Wednesday.

So what

Virtually all cryptocurrencies are in free fall today following the failure of FTX, which was one of the leading cryptocurrency exchanges in world.

Changpeng Zhao, the CEO of another cryptocurrency exchange, Binance, announced recently that it was selling the FTX Token (FTT -2.08%) -- the coin issued by FTX -- due to risk concerns. The announcement set off a flurry of rumors that FTX's related crypto trading arm, Alameda Research, might be in trouble. In any case, the speculation set off an old-fashioned bank run on FTX as clients pulled their money from the exchange and sold off FTT, resulting in the collapse of FTX.

The saga appears to be hitting all cryptocurrencies today, with many coins down 20% or more.

This is relevant to Nvidia because its GPUs are a key component of cryptocurrency mining. A decline in crypto prices leads to less mining, which equates to less potential demand for Nvidia's chips.

It is unclear exactly what percentage of Nvidia's revenue goes toward crypto mining, since miners typically buy gaming GPUs from third parties, in addition to Nvidia's specialized cryptocurrency mining processor (CMP).

In the recently reported quarter, Nvidia said that sales of its CMP units were "nominal," down from $266 million in the year-ago quarter. Meanwhile, sales of gaming chips were down 33%. Elaborating on the crypto impact on gaming revenue, management said it has "limited visibility into how much this impacts our overall GPU demand."

While crypto revenue is likely small for Nvidia, it still probably has a marginal impact. Therefore, it is likely feeling the fallout of today's crypto bust. 

Now what

Like the 2018-2019 period, the semiconductor industry is going into a downturn in conjunction with crypto prices and therefore mining activity, and it's very unclear how long the downturn will last. It could be a correction lasting a couple of quarters, or it could be something more.

In any case, investors should try to take a long-term view on Nvidia, which notably leads in GPUs for artificial intelligence (AI) applications. Given that AI might just be entering its golden age (as evidenced by commentary from the big cloud companies), that's probably the most important factor to focus on. As long as Nvidia maintains its technical superiority in GPUs for AI, the stock should eventually bounce back.

However, downturns in consumer gaming and crypto are certainly cyclical issues that investors will have to deal with over time.