Nvidia Introduces Exclusive Crypto Mining Chips To Protect Core Gaming Business Against Crypto Hoarding: Bloomberg

NVIDIA Corp NVDA urged gaming customers not to buy the latest high-end computer graphics chips like GeForce RTX 3080 Ti, a $1,199 graphics card, and the roughly $600 RTX 3070 Ti with stripped off abilities, Bloomberg reports.

What Happened: Nvidia wanted the high-end graphic chips to serve its core gamer customer base exclusively. It was seeking to discourage miners from hoarding for massive crypto-processing farms. Although, Nvidia has pushed for an exclusive mining chip.

Cryptocurrencies have grown more unpredictable and famished for the hardware following a demand surge.

The rising market price of digital currencies usually leads to miners' shift from graphics cards to pricier custom chips optimized for the algorithm they target. 

That has left graphics-card makers with an abrupt drop in demand and a glut of unsold inventory made worse by a flood of used cards into the second-hand market as miners dumped them. As a result, Nvidia had to cut its annual sales forecast to $2.7 billion in Nov. 2018, falling $700 million shy of analysts' estimates. Investors dumped the stock, leading to a loss of 20% of its price in two trading days.

Therefore, Nvidia restricted the so-called hash rate on its newest graphics chips and some existing products to make them inefficient for mining without affecting their gaming performance.

Why It Matters: However, Nvidia cannot distinctly gauge the volume of graphics card sales to gamers and crypto miners.

Crypto miners require multiple graphics cards as their processing infrastructure, akin to a data center or a supercomputer, is the most extensive accumulation of processors.

Second-hand Nvidia cards of models that preceded the RTX 3080 Ti were selling for over $500, more than Nvidia's new top-tier model as per eBay Inc EBAY and other online retailers.

Nvidia's GeForce RTX 3080 graphics card launched last September at $699 sold for $2,582 in May. It was currently selling for a premium of 139% over the launch price, according to the online marketplace StockX.

Nvidia had introduced crypto-mining processors (CMPs) exclusively for miners, as it remains bullish on their prospects. 

The company estimates a $400 million chunk of Q2 revenue from the CMPs. CMPs are not compatible with computers for gaming or any other conventional graphics-related tasks. The CMPs made from rejected graphics cards added to Nvidia's operational efficiency.

Analysts estimate Nvidia's 2021 revenue to be more than double its 2018 total of $11.95 billion. Nvidia's gaming business beat the whole company size in 2018. It has successfully grown its data center business, with the chips providing 36% of its revenue in the most recent quarter.

Raymond James analyst Chris Caso has maintained NVIDIA rating with a 'Strong Buy' and raised the price target from $750 to $900.

Price action: NVDA shares traded higher by 0.10% at $737.10 in the premarket session on the last check Tuesday.