BUY Nvidia (NVDA)
Nvidia investors got burnt in 2022, with the semiconductor's earnings decreasing, and the stock $NVDA was down by 50%. Of course, Nvidia faced numerous challenges beyond its control, but that isn't a reason for failure.
The collapse of cryptocurrency in 2022 was the worst shock that Nvidia has encountered. Graphics processing units (GPUs), Nvidia's flagship product, are crucial in cryptocurrency mining. The same computer technology that can run artificial intelligence programs, create lifelike visuals, and execute engineering simulations may also process calculations for cryptocurrency mining.
Many miners shut down their equipment once the cryptocurrency markets crashed, and hardly any bought new GPUs with greater power to continue mining. The impact of this on Nvidia was double. First, among cryptocurrency miners, there was no longer any demand for Nvidia's gaming GPUs, which mine cryptocurrencies.
Second, many miners sold their GPUs, which caused a glut of cheap GPUs on the market that anyone putting together a gaming system could get for less than a brand-new one. As a result, Nvidia's gaming division had a 51% decline in revenue to $1.57 billion in Q3.
Sadly, this is not the first time Nvidia has mishandled bitcoins. The cryptocurrency bubble burst in 2018, eradicating the need for GPUs and negatively impacting Nvidia's income. Nvidia had to wait for the pandemic's effects before their sales levels reached those of 2018.
Even if this headwind might be over, it might take some time for Nvidia to exhaust its stock and the used market to run dry so that the consequences could last until 2023.
Many semiconductor businesses have made plans to cut back on their capital expenditures and, at the very least, avoid adding more fuel (i.e., more supply) to the fire in response to weaker demand and lower prices. However, Samsung is still investing, purchasing new machinery to produce semiconductors, and producing chips. Therefore, even if China ultimately decides not to worsen a scenario of global semiconductor oversupply, South Korea, which is right next door, has made the opposite decision.
In the best-case scenario, this will prolong the expanding semiconductor glut, lowering prices and profit margins for businesses like Intel, AMD, and Nvidia into 2023. In the worst instance, it might exacerbate the situation by further driving prices down. The recent pullback has created an attractive entry point for investors.
Source: Yahoo Finance