What Will the Ethereum Protocol Changes Do for Nvidia’s GPU Sales?
The crypto bull market remains in full throttle. This has been good news for Nvidia (NVDA). The chip giant sells the GPUs used as crypto mining rigs, providing the company with another stream of revenue.
RBC’s Mitch Steves estimates that between January 31 and March 7, the company generated between $225 and $275 million in revenue from the sale of GPUs for the purpose of mining Ethereum – the second largest cryptocurrency by market cap.
There are two ways for miners to earn their money; One is for a reward for finding the new block and the second is from the gas fees – or in Ethereum’s case, Gwei – which users pay to make a transaction.
However, the Ethereum developer community has recently decided on some changes to the protocol.
Starting in July, Ethereum will move forward with Ethereum Improvement Proposal (EIP) 1559, which will overhaul the way the blockchain operates and will make it more user friendly.
However, miners are unhappy with this development as the changes will mean they only stand to receive an optional tip from transactions, instead of the gas fee which will be sent to the network and “burnt.”
Steves thinks that in most cases, the mining fees, and not the block reward, amount to over 50% of crypto mining revenue. Therefore, starting in July, that revenue stream “may decline substantially,” and the upgrade will “drive down combined transaction fees/tips given to miners.”
Ok, so the upgrade is good for users, yet bad for miners. But, what does this all mean for Nvidia?
“Simply put, if investors believe that EIP 1559 will cause the price of Ethereum to rise rapidly and drive adoption, NVDA could sell up to $700M + in GPUs in Q2,” the 5-star analyst said. “If investors believe that transactions will not change and mining fees will erode rapidly, all crypto currency sales would hit a strong stop in July 2021, with used GPUs making their way into the secondary market.”
Either way, Steves remains an Nvidia bull. The analyst rates NVDA an Outperform (i.e. Buy) rating along with a $610 price target. Investors could be pocketing gains of ~19%, should Steves’ thesis play out accordingly. (To watch Steves’ track record, click here)
Looking at the consensus breakdown, most of the RBC analyst’s colleagues agree. Based on 23 Buys vs. 4 Holds, the stock has a Strong Buy consensus rating. There’s ~27% upside potential, given the average price target clocks in at $649. (See Nvidia stock analysis on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.