NVIDIA's Unwanted Success: Shares Remain Overblown Over Mining Mania

Previously bearish analysts bet on the gaming market, neglecting the effect of cryptocurrency mining on the demand for NVIDIA products.

mining on the demand for NVIDIA products.

BMO Capital Markets sent out a message to its clients, apologizing for its bearish stance in recommending the shares of NVIDIA. Basing its analysis on demand for gaming, the investment firm glanced over the great demand of NVIDIA products for the cryptocurrency industry. 

NVIDIA itself has been trying to downplay the success of its cards as mining devices, preferring to be seen as a gaming company. Nevertheless, NVIDIA's shares doubled this year, to $214.18, from a price around $100 in January.

"We have been reluctant to change our view, but now recognize that our underperform call did not work out," BMO's Ambrish Srivastava pointed out in a note to clients.

NVIDIA itself had been bearish on its quarterly earnings, and the results surprised investors. 

"Our negative stance to date was based largely on our view that the gaming business would see a marked deceleration in CY17 vs. CY16. However, the diversity in the business with wins at Nintendo, and help from the cryptocurrency market, has enabled the business to sustain at a higher level than what we were modeling," wrote BMO.

NVIDIA's shares have outperformed the market with gains of 102% in the past year, compared to the rise in the S&P 500 index of 15%. But even those gains are nothing in comparison to the percentage growth of the cryptocurrency market.

After the fact, BMO has raised its projections for NVIDIA, predicting the price would hover around $200 from a previous target of $135.

"While we are ourselves believers in the secular trend to heterogeneous computing, we have been wrong on the tailwind for NVIDIA's business in this market," added the firm. 

While Bitcoin dominates most of the market, relying on the newest and most powerful machines by Bitmain, graphic card mining is still going strong for smaller digital assets that promise a larger payout.

The NVIDIA shares, therefore, offer an indirect way for investors to gain from the cryptocurrency market without owning any of the actual digital assets.