“Blame Bitcoin” may be a new slogan as the tech sector continues to sink.
Semiconductor manufacturer
Nvidia
(ticker: NVDA) fell 8.1%, at $ 532.94, during recent trading amid a broader price in the tech-heavy
Nasdaq Composite
table of contents. Chip inventory stands out as the company released a strong earnings report on Wednesday, including an increase in products related to Bitcoin and other cryptocurrencies.
Payments app
Square
(SQ), meanwhile, also continued its decline, down 4.3%, to $ 227.09. The company’s relatively strong earnings report on Tuesday included investments and operating profits from Bitcoin, and the company said it plans to “double” the digital currency. That may weigh on the stock, which has fallen nearly 20% in the past few sessions as Bitcoin prices have fallen.
Tech is under pressure for other reasons: steep valuations have left the industry vulnerable to weak business forecasts. Rising bond yields are a threat by putting pressure on the present value of future cash flows. Big Tech is also a crowded trade that could lose popularity as investors look for more cyclical positions or sectors with lower valuations.
But the trading patterns in Nvidia, Square,
Tesla
(TSLA) and other stocks could also be a sign of Bitcoin’s growing influence. Companies plow capital directly into Bitcoin and related products and services, increasing their exposure at a time when prices have risen by more than 350% in the past year. Despite the recent drop, Bitcoin is still up 67% this year.
Crypto is definitely gaining momentum.
MasterCard
(MA) said this month that it would start supporting cryptocurrencies directly on its network, noting that many consumers are already using cards to buy crypto assets. But it would still be a daunting task to make Bitcoin a viable currency for everyday purchases, one
MasterCard
the executive noted at a conference on Thursday.
“Bitcoin does not act like a payment instrument,” said Ann Cairns, Mastercard’s executive vice president, according to a report on MarketWatch. “It’s too volatile and takes too long to complete transactions.”
Be it an asset class or a payment instrument, Bitcoin’s rise (and possible decline) is tearing through corners of technology, banking and other industries.
For example, Nvidia released an impressive earnings report like Barron’s noted. But it will also become more of a crypto game.
The company said crypto may have had a positive impact from $ 100 million to $ 300 million in the quarter. The company is launching a new line of cryptocurrency mining processors, or CMPs, for professional crypto mining.
“Cryptocurrencies have recently started to be accepted by companies and financial institutions and are showing increasing signs of endurance,” Nvidia told investors. The new suite of CMPs will give the company greater insight into crypto’s contribution to revenue, the company added.
Some analysts question the sustainability of the trend. Piper Sandler’s Harsh Kumar, for example, repeated an Overweight rating on the stock, but warned of Nvidia’s growing exposure to crypto.
“With cryptocurrency coming back into the picture, the line between crypto and core gaming has blurred at the top,” he writes. “We think investors may question the sustainability of these trends, especially given the cryptocurrency troubles in the past.”
Payments app Square, as mentioned above, is now also fully in the Bitcoin debate. While the major business trends look healthy, investors may be concerned that Square is expanding into crypto as prices spike. The company purchased $ 170 million worth of Bitcoin in the quarter, on top of $ 50 million previously purchased, and is marketing its Cash App as a mechanism to buy, store, and ultimately execute transactions.
Wall Street has mixed views on that idea. Competitors love
PayPal Holdings
(PYPL) are also plowing into Bitcoin, along with other “neobbank” competitors, JMP analyst David Scharf notes. That raises questions about the long-term “stickiness” of Cash App and whether its growth can be sustained.
Indeed, Cash App now accounts for about half of Square’s gross profit, and the company is counting on Bitcoin to boost demand. That makes Square shares a kind of derivative on Bitcoin; Shares have increasingly correlated with the price of Bitcoin over the past year, and the relationship may only get closer.
Square stocks may also not be fully responsible for Bitcoin’s volatility, which has seen several boom-bust cycles. At approximately 100 estimated 2022 Ebitda (earnings before interest, taxes, depreciation and amortization), the stock looks fully valued, according to Scharf, who maintained a Market Perform rating.
Guggenheim’s Jeff Cantwell took the opposite side of that debate. He upgraded Square shares to a Buy on Thursday, in part with a positive outlook for Bitcoin. “We think Bitcoin is higher in the longer term,” he writes, adding that it should drive an increase in the use of Cash App and other metrics.
He doesn’t see Bitcoin becoming a currency used for regular purchases anytime soon. But it doesn’t matter, he notes, as Bitcoin turns into “digital gold” – a store of value and an asset class. There are 50 million Bitcoin digital wallets worldwide, a large and growing user base, he notes. Square is doing its part to make Bitcoin mainstream.
Cantwell sees Square shares reach $ 288. Bitcoin may also have to do its part to get the stock there.
Write to Daren Fonda at [email protected]