“Blame it on Bitcoin” may be a new phrase if the tech sector continues to sink.
Semiconductor manufacturer
Nvidia
(ticker: NVDA) fell 8.1% to $ 532.94 in recent trading amid a broader defeat in the technology sector
Nasdaq Composite
index. The chip stock stands out because the company issued a strong earnings report on Wednesday, which included an increase in products related to Bitcoin and other cryptocurrencies.
Payment application
Square
(SQ), meanwhile, also continued its fall, down 4.3% to $ 227.09. The company’s relatively strong earnings report on Tuesday included Bitcoin investments and operating gains, and the firm said it plans to “double” the digital currency. This may be weighing on stocks, which have fallen nearly 20% in recent sessions as Bitcoin prices have fallen.
Technology is under pressure for other reasons: strong valuations have made the sector vulnerable to the weakness of companies ’forecasts. Rising bond yields pose a threat by pressuring the current value of future cash flows. Big Tech is also a crowded trade that could lose its favor as investors look for more cyclical exposures or sectors with lower valuations.
But the business patterns in Nvidia, Square,
Tesla
(TSLA) and other stocks may also be a sign of Bitcoin’s growing influence. Companies dedicate capital directly to Bitcoin and Bitcoin-related products and services, expanding the exposure at a time when prices have skyrocketed by more than 350% in the last year. Despite its recent slide, Bitcoin continues to rise 67% this year.
Undoubtedly, Crypto is gaining momentum.
Mastercard
(MA) said this month that it would start supporting cryptocurrencies directly on its network, noting that many consumers already use cards to buy cryptocurrencies. But it would still be a problem to turn Bitcoin into a viable currency for daily purchases, a
Mastercard
executive noted at a conference Thursday.
“Bitcoin does not behave as a payment instrument,” said Ann Cairns, executive vice president of Mastercard, according to a report published in MarketWatch. “It’s too volatile and takes too long to trade.”
Whether it becomes an asset class or a payment instrument, the rise (and potential fall) of Bitcoin is debuting in corners of technology, banking and other sectors.
Nvidia, for example, issued an impressive earnings report as De Barron pointed out. But it is also becoming more of a work of cryptography.
The company said the cryptocurrency could have had a positive impact of $ 100 million to $ 300 million during the quarter. The company launches a new line of cryptocurrency mining processors, or CMPs, for professional cryptocurrency mining.
“Cryptocurrencies have recently begun to be accepted by companies and financial institutions and are showing more signs of staying power,” Nvidia told investors. Its new CMP line will give the firm more visibility into the contribution of cryptography to revenue, the company added.
Some analysts question the sustainability of the trend. Piper Sandler’s Harsh Kumar reiterated a stock overweight rating, for example, but warned about Nvidia’s growing exposure to crypto.
“With the cryptocurrency re-entering the image, the boundary between the cryptographic game and the core looks blurred,” he writes. “We believe investors can question the sustainability of these trends, especially given the cryptocurrency problems of the past.”
The Square payments app, as noted above, is also now directly in the Bitcoin debate. While basic business trends look healthy, investors may worry that Square is expanding into cryptography as prices peak. The company bought Bitcoin for $ 170 million a quarter, in addition to the $ 50 million it previously acquired, and markets its Cash app as a mechanism to buy, store, and ultimately transact with the cryptocurrency.
Wall Street has mixed opinions on this idea. Competitors like it
PayPal Holdings
(PYPL) are also entering Bitcoin, along with other “neobank” competitors, notes JMP analyst David Scharf. This raises questions about the long-term “viscosity” of Cash App and whether its growth can be maintained.
In fact, the Cash app now accounts for about half of Square’s gross profits and the company relies on Bitcoin to fuel demand. This makes square stocks a kind of Bitcoin derivative; stocks have increasingly correlated with the price of Bitcoin over the past year and it is possible that the relationship will only tighten.
Square stocks may not fully explain the volatility of Bitcoin, which has had several boom-bust cycles. According to Scharf, which maintains a Market Performance rating, the shares appear to be fully valued at around 100 Ebitda (earnings before interest, taxes, depreciation and amortization) from 2022 (2022).
Jeff Cantwell of the Guggenheim took the opposite side of this debate. On Thursday it updated Square shares on Buy, in part with an optimistic outlook for Bitcoin. “We believe Bitcoin has a superior long-term trajectory,” he writes, adding that it should lead to increased use of the Cash app and other metrics.
He doesn’t see Bitcoin becoming a currency that is used for traditional purchases soon. But that doesn’t matter, he points out, as Bitcoin is becoming “digital gold,” a store of value and a class of assets. There are 50 million digital Bitcoin wallets worldwide, a large and growing user base, he notes. Square is doing its part to adopt Bitcoin as the main one.
Cantwell sees Square shares reach $ 288. Bitcoin may have to do its part for the stocks to get there as well.
Write to Daren Fonda at [email protected]