Key Takeaways:
- Nvidia stock NVDA hit a record high at $480.
- The recession fears threatening the US and China could tumble Nvidia.
- Demand for GPUs dropped ahead of Bitcoin halving.
YEREVAN (CoinChapter.com) — Nvidia, a company specializing in graphics processing units (GPU) manufacturing and AI technologies, saw its stock NVDA soar over 240% year-to-date and cross $480 per share on Aug 22, establishing an all-time high.
The stock then declined 5% in presale on Aug 23, threatening a bearish continuation.
While another short-term bullish streak is possible, Nvidia stock faces large-scale headwinds that could dampen the long-haul upside attempts in 2024. Here are three:
#1 US market instability threatens Nvidia stock price.
The US Federal Reserve has been battling post-Covid inflation by raising interest rates and slowing down the economy. Eleven consecutive revisions later, the market participants expect Fed Chair Jerome Powell to give another hawkish speech on Friday, Aug 25, at Jackson Hole.
Economist polls have suggested the high likelihood of a recession in the US and eurozone for nearly a year as the Fed’s hawkish moves are roiling bond and interest rate markets, putting significant stress on the economy.
If another rate hike follows in September 2023, the stock market will be in more trouble, triggering a fresh wave of recession fears.
Tech stocks have been declining throughout August despite the year-to-date growth. Should the bearish streak continue, NVDA is likely to join in.
According to investor and trader Derek Quick, most of Nvidia’s investment portfolio comprises US government securities, which are at risk, especially with the recent US Government credit rating.
#2 China’s economic woes pile – why should Nvidia shareholders care?
On Aug 17, Evergrande, a China-based real estate giant, filed for Chapter 15 bankruptcy in Manhattan. Additionally, Evergrande’s affiliate, Tianji Holdings, went bankrupt, reigniting worries about China’s real estate market.
Overall, the unprecedented debt crisis in the property sector, which accounts for roughly a quarter of the economy, exacerbated the anxiety over the weakening economy. The $36 billion liquidity influx also pushed Yuan to $0.13, or near a 15-year low against the US dollar.
Should the liquidity influx continue, the People’s Bank of China risks dumping Yuan even lower. However, the question remains: Why should Nvidia shareholders keep an eye on the Chinese economy?
According to the 2022 earnings report, 47% of Nvidia’s revenue comes from China and Taiwan, the second-largest economy globally, with a high demand for the company’s products. However, should the Chinese economy fail, the demand for NVDA will, too, send the stock tumbling.
#3 Decline in GPU demand
93% of the overall Bitcoin supply (21 million coins) has already been mined.
While other proof-of-work coins on the market require mining, their accumulative demand can hardly match Bitcoin’s. Moreover, BTC mining is one of the reasons behind Nvidia’s success, as the latter produces GPUs, widely demanded by mining pools and individual miners globally.
The future reduction in demand seems likely because of the Bitcoin halving in 10 months. Ethereum 2.0 Merge in 2022, which effectively transitioned the coin to proof-of-stake consensus, created aftermarket sales of their GPUs that, in the future, could hurt their prices and demand.
