Nvidia’s share price has fallen 48 percent since October. Now, rumors have surfaced that SoftBank plans to sell its 4.9 percent share in the leading graphics chip maker.
Bloomberg reporting has cited anonymous sources who allege that SoftBank, which through its Vision Fund acquired around $3 billion in Nvidia shares in 2017, could sell all or part of its stake early next year.
Japan’s SoftBank bought its stake in the American technology company in May 2017, and it later transferred the shares to its Vision Fund. The fund is an investment vehicle with an end goal of $100 billion in value. SoftBank became Nvidia’s fourth-largest shareholder.
Nvidia’s graphics chips, popular in gaming machines, found a new market in cryptocurrency mining as home-users sought to improve their machines and take on the new form of income generation.
Nvidia’s Share Price Decline not Due to Crypto Downturn
In August, Nvidia shelved its focus on the cryptocurrency market, blaming the downward trend of cryptocurrency prices. At the time CCN disputed this reasoning by comparing Bitmain’s profitability in an equivalent period to that cited by Nvidia before it exited the market.
It was not the demand for cryptocurrencies that was impacting Nvidia, but a decline in demand for graphics processor unit (GPU) mining chips. ASIC mining chips and machines were performing much better in the market due to their efficiency, drawn from being designed purposely for cryptocurrency mining.
At the time of Nvidia’s market exit, the demand for cryptocurrency mining equipment was high, and competitors like Bitmain, Canaan, and Samsung saw growth. The demand for these specialist machines was fueled by large-scale crypto-mining operations which benefit from economies of scale far over the efficiencies of home and small miners.
In August, Nvidia CFO Collette Kress said:
“Whereas we had previously anticipated cryptocurrency to be meaningful for the year, we are now projecting no contributions going forward.”
Last month, CNBC Mad Money’s Jim Cramer illustrated a more likely reason for Nvidia’s sudden woes:
“Nvidia still makes the best graphics chips, which have become more powerful than traditional microprocessors. It still has a lead over the competition in a lot of uses, although you could argue that AMD’s catching up to them in the data center while Intel rivals them in self-driving vehicles. I think Nvidia made an honest forecasting mistake.”
Though Nvidia’s share price has fallen, it is still the largest gaming graphics card maker. Some of the share price fall should be attributed to a correction in demand for gaming chips. During Q3 there was an oversupply of gaming chips to the market, the firm slowed its supply and adjusted fourth-quarter forecasting down. Analyst consensus is that after this adjustment works through, the company will continue to see earnings growth in the region of 15 percent each year for the next five.
If SoftBank sells its Nvidia share, it is still like to make $3 billion from the deal, as it constructed a “collar-trade” to protect against a share price decline. The company, incidentally, also recently denied reports that it had participated in Bitmain’s latest pre-IPO funding round.
Featured Image from Shutterstock. Charts from TradingView.