Earnings Watch: Nvidia’s crypto slide and thoughts on earnings recession

Can Nvidia avoid the crypto vortex?

The earnings season has lost its impact on the overall equity market, but next week’s earnings do offer plenty of interesting earnings releases. Our key focus is Nvidia which reports FY23 Q3 (ending 31 October) on Wednesday. Analysts expect revenue of $5.84bn down 18% y/y and EBITDA of $2.1bn down from $3.2bn a year go and EPS of $0.71 down 30% from a year ago. Despite Nvidia’s lack of mentioning crypto in their earnings statements everyone knows that crypto mining is a big driver of revenue in recent years. Last time the crypto industry went through a crypto winter with mining operations seizing to exist the 12-month forward revenue expectation plunged the most since the Great Financial Crisis. Nvidia’s shares declined 54% from its peak back in 2018 before hitting the bottom.

This time Nvidia’s shares plunged 66% from the peak in November 2021 to the bottom last month as crypto mining operations are no longer as profitable as before shutting down its operations causing an oversupply of GPUs. This has led to lower prices and inventory writedowns for Nvidia. The current FY2023 revenue estimate is €27.1bn down 22% from its peak in April of $34.9bn. The slowdown in crypto mining and the general slowdown in technology thus likely machine learning applications have reduced revenue expectations by staggering $7.9bn. With the latest FTX implosion which have written about here and here, the crypto winter could be very deep and last much longer than the previous one. This means that there is clearly a downside risk to Nvidia’s outlook.