Nvidia's 'Crypto Conundrum' Explained: How A Drop In Digital Currencies Could Impact The Stock

NVIDIA Corporation (NASDAQ: NVDA) shares have shown some uncharacteristic weakness so far in 2022, down 35.2% year-to-date. On Sunday, Bank of America analyst Vivek Arya said investors are growing increasingly concerned that declining gaming card prices suggest demand from cryptocurrency miners and gamers could be falling.

The Numbers: Gaming makes up about 45% of Nvidia's total sales, and it includes gaming cards purchased by both gamers and crypto miners. In addition, Nvidia's custom Nintendo Switch console chips make up a large portion of its gaming segment revenue. Arya said Nvidia gaming cards prices are now down to between 10% and 15% above MSRP, well off of peak prices of more than 100% above MSRP.

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Arya said falling prices have investors concerned about a repeat of the company's 2018 cycle, when PC gaming sales dropped 28% and crypto mining demand dried up as crypto prices crashed. The company's overall gaming segment revenue dropped 45% from peak levels.

How To Play It: The good news for Nvidia stock investors is that Arya said the stock is already pricing in at least a 25% cut to Nvidia's 2022 gaming sales. He said Nvidia's current valuation is already seemingly pricing in a downturn identical to 2018.

"So all-in, we believe an apples-apples cut is already well reflected, while a (lower-probability-since console supplies tight) worse situation would suggest further downside," Arya said.

Despite the potential gaming headwinds, Arya has a Buy rating and $320 price target for NVDA stock.

Benzinga's Take: If 2018 is any indication, long-term investors should be buying the dip in Nvidia shares hand-over-fist. Since the end of 2018, Nvidia shares are up more than 480%.