Investors are buzzing about Nvidia (NVDA -3.33%) after it reached a $1 trillion market capitalization at the end of May. Now trading at just under $400, Nvidia joins a rarefied elite of just four other U.S.-based companies -- Apple, Alphabet, Microsoft, and Amazon -- with trillion-dollar market valuations. Although Nvidia is obviously a strong play on the future growth of the tech industry, could it also be a sneaky crypto play?
That might not be as insane as it sounds. Nvidia already provides the specialized graphics processing units (GPUs) required for cryptocurrency mining rigs. And Nvidia's recent announcement of a new AI supercomputing platform has already led to a flurry of AI-themed cryptos surging higher over the past week. Here's a closer look at why Nvidia might be a way to get exposure to the crypto industry, without taking on excessive risk.
The old crypto investment thesis for Nvidia
Until the start of this year, the standard investment thesis for Nvidia as part of a crypto portfolio was based on cryptocurrency mining. To mine proof-of-work cryptos such as Bitcoin, miners need very powerful computing systems called mining rigs. And Nvidia has provided some of the most powerful GPUs used in these mining rigs. In any review of the best GPUs for mining, Nvidia typically ranks at the top of the list.
Image source: Getty Images.
As a result of this link to cryptocurrency mining, some analysts and fund managers already consider Nvidia to be an invaluable part of any broad-based stock portfolio designed to get exposure to the crypto industry. For example, take the Schwab Crypto Thematic ETF. Currently, Nvidia is its sixth-largest holding, behind PayPal and ahead of Block, representing 4.1% of the fund's holdings.
However, crypto giant Ethereum transitioned from a proof-of-work blockchain to a proof-of-stake blockchain back in September, so the investment narrative around Nvidia and crypto mining has been fading. That's because Ethereum mining rigs are now obsolete. You can no longer use Nvidia GPU mining rigs to mine Ethereum, so they need to be repurposed for other cryptos. Given that Ethereum is the world's second-largest cryptocurrency by market cap, that's actually a big deal. It definitely takes some of the allure away from the crypto mining idea.
The new crypto investment thesis for Nvidia
That's why Nvidia's recent announcements related to AI are so exciting for crypto investors. It means that there's a new reason to buy Nvidia, and that's the rise of new AI-powered cryptos. With the popular success of ChatGPT and other generative AI projects, it's becoming more and more popular to put AI projects on the blockchain, and that's leading to a dramatic surge in AI cryptos. For example, as soon as Nvidia reported blowout sales estimates related to AI, SingularityNET, an AI crytpo, jumped almost 20%. Smaller AI cryptos were up 5% across the board.
Bigger gains related to AI and crypto could be on the way. At a big computer industry trade show in Taiwan, Nvidia announced the launch of a new AI supercomputer platform (DGX GH200) that is specifically being billed as a way for large tech companies to build ChatGPT competitors. Moreover, Nvidia said at the trade show that it was going to focus on ways to make video games more lifelike with the help of AI. That could spur growth in the blockchain gaming and metaverse sectors of the crypto industry.
How much Nvidia is too much Nvidia?
As a result, Nvidia could be a relatively safe way for investors to gain access to the infamously volatile crypto market. Instead of trying to pick winners among a growing number of AI-themed cryptos (almost all of them with market caps of less than $50 million), you could simply diversify your exposure via Nvidia. And, instead of trying to find the best crypto mining stocks or trying to pick the best proof-of-work cryptos (which require mining), you could simply invest in Nvidia.
Obviously, you don't want to overdo things, no matter how excited you might be about Nvidia, AI, or crypto. As noted above, the Schwab Crypto Thematic ETF currently has less than 5% of its portfolio dedicated to Nvidia. That might be a good benchmark figure when thinking about how to diversify your own portfolio.
With all of the good news coming out of Nvidia these days, I'm bullish both on the company and the long-term fortunes of the AI industry. The extra bonus for investors is that Nvidia also gives you sneaky access to crypto without having to dip your toes into the crypto market.
