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Home / Technology / Weak Crypto-Mining Demand Is Damaged NVIDIA's Cash Flow Momentum – The Motley Fool

Weak Crypto-Mining Demand Is Damaged NVIDIA's Cash Flow Momentum – The Motley Fool



There has been a roller coaster ride for NVIDIA (NASDAQ: NVDA) in 2018. The all-over graphics graphics specialist looked unstoppable for most of the year thanks to a fantastic growth in his PC gaming and data center businesses. But the tragedy hit in mid-November when the chip maker announced that the growth will hit a wall.

The root of the problem

NVIDIA's revenue growth is expected to fall into single digits in the quarter. Cause: Weak graphics card demand. Cryptocurrency mining was a key catalyst for graphics card sales and pricing. Mining workers bought GPUs (graphics processing units) in the chains when mining of digital currencies such as bitcoin was profitable, which led to a sharp rise in prices.

But the emergence of specialized mining wells and the declining payout from crypto-mining mining mean that the GPU demand from the crypto curve has decreased. This has led to excess GPU stock in the market. Not surprisingly, graphics card prices have dropped significantly since the year began, which led to a decrease in NVIDIA's cash flow.

  Figure showing the relationship between GPU price and cash flow trends.

Data sources: Graphics card prices from TechSpot, cash flow data from NVIDIA quarterly reports. Diagram of the author. FY = fiscal year.

The table above shows a correlation between the price of NVIDIA's flagship GTX 1

080 Ti graphics card at various points in the relevant quarters 2018 and the cash flow profile. For example, the GPU price for the fourth quarter of 2018 includes the month of January, when the GTX 1080 Ti sold for $ 1200, compared to the manufacturer's recommended retail price (MSRP) of $ 700.

But the price of NVIDIA's Flagship GPU has fallen since then, and this seems to affect the cash flow profile. It is not denied that NVIDIA sells many GPUs except GTX 1080 Ti. But I focus on the product in question because it is a high-end offering, which means it should have been in strong demand by miners and players. That's probably why the price went down so much when miners were taken out of the equation.

  An NVIDIA GPU.

Image source: NVIDIA.

It is also reported that crypto curve organizers sell their used graphics cards, bringing more stock into the market and hurting prices. The bad news is that this storage liquor seems to affect NVIDIA's new GPUs as well. Its latest RTX 2080 graphics card was available for a $ 150 discount of $ 900 MSRP as part of Black Friday and Cyber ​​Monday offers. It's a big discount for a card that has been on the market for just two months.

It is therefore likely that NVIDIA's cash flow profile will take further hits, as it expects gluten to last for a few quarters. 19659003] What's next?

The good news is that NVIDIA has generated nearly $ 2.5 billion in free cash flow during the first nine months of the current fiscal year, despite the recent setbacks, compared to just under $ 2 billion over the same period of the year ago .

The company wants to use the extra cash flow it has generated thanks to the crypto catalyst to increase investor confidence. It has recently increased its dividend by 7% and approved a $ 7 billion buy-back program. Now the dividend does not increase much, as NVIDIA's dividend yield after the trip stands at just 0.44%.

The company has been very, very conservative when it comes to increasing the yield despite the massive growth in income and cash flow over the years. If NVIDIA wanted it, it could have tripled the proceeds without sweating and still have enough money to invest in other activities or even reduce debt.

But NVIDIA has chosen to increase the share purchase program, which may allow it to buy almost 8% of its outstanding shares at today's market value. It is clear that the company is looking to support its earnings by reducing its shareholdings, but at the same time the possibility of a significant increase in the proceeds from the equation falls.

Moreover, NVIDIA's quarterly cash flow levels have now fallen to the pre-cryptocurrency catalyst period, which began in mid-2017 and lasted through February this year.

 NVDA Free Cash Flow (quarterly) chart

NVDA Free Cash Flow (quarterly) data by YCharts

So investors should not expect NVIDIA's cash flow to rise to dizzying heights seen over the past year or so. However, the company's cash flow performance may improve, provided the technological benefits provided by the data center and the PC gaming chips provide a chord with customers.

NVIDIA packs new technology into its 20-series archive GPUs Advanced micro-devices do not yet offer, while appearing to make advances in artificial intelligence with their inferior GPUs. Assuming that these innovations are a hit with customers, NVIDIA can regain its price strength and rebuild its cash flow profile. Until then, NVIDIA investors must remain patient, as it appears to experience turbulent times in the short term.


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