Nvidia Has A Crypto-Hangover, Mid-Range Turing Cards Likely Delayed

Nvidia announced its third quarter financial results, but a worrying glut of graphics cards in the channel, which Nvidia CEO Jensen Huang chalked up to a "Crypto hangover," impacted overall earnings and guidance. The news sent the company's stock plummeting 18% in after-hours trading. Nvidia expects the oversupply to require "one to two" quarters to recede.

The oversupply specifically impacts Nvidia's GTX 1060 graphics cards, which could result in a delay in shipments of Nvidia's forthcoming Turing 2060 cards because Nvidia will surely wait for the existing stock to be liquidated before it floods the market with newer, faster video cards in the same price range.

AMD also released the RX 590 yesterday, which it designed specifically to compete with the GTX 1060. That could complicate matters for Nvidia as it tries to liquidate the excess inventory. The inventory announcement overshadowed the record revenue generated by several of the company's key segments, like data center and automotive.

Nvidia's Jensen Huang summarized the excessive inventory of mid-range graphics cards, meaning the GTX 1060, as a byproduct of the blockchain/cryptomining crash. That's similar to AMD's recent earnings report that was impacted by poor demand after cryptocurrency-driven demand had dried up. Huang stated that the oversupply of mid-range graphics cards would take "one to two" quarters to clear up, which is similar to AMD CEO Lia Su's prediction of "several" quarters before the graphics card market returned to normal.

Nvidia originally announced in May 2018 that it expected revenue from cryptocurrency to drop by two-thirds, sending its stock sliding. The company failed to correctly predict the nature of the recovery, as its channel partners didn't lower prices as quickly as expected while the market normalized. That, coupled with a miscalculation of a return of demand, caught Nvidia off guard during the tail end of the quarter.

Nvidia plans to stop delivery of mid-range Pascal graphics cards entirely during this quarter, and we shouldn't expect to see new mid-range Turing graphics cards on the market until the inventory recedes. It wouldn't be surprising to see either reduced pricing or new game bundles for the Nvidia GTX 1060 cards over the coming months.

Overall Nvidia continues to exhibit solid fundamentals and is executing well on its long-term roadmap, with revenues coming in at $1.97 billion, which is up 21% year-over-year.