Why Nvidia Might Be the Safest Way to Play Crypto
Key Points
Nvidia's graphics processing units (GPUs) can be used to mine Bitcoin and other cryptocurrencies.
The total share of Nvidia's revenue currently derived from processors used for crypto mining is relatively small.
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Nvidia (NASDAQ: NVDA) is the top provider of graphics-processing units (GPUs) used to mine proof-of-work cryptocurrencies. For example, Bitcoin's (CRYPTO: BTC) total coin supply is capped at 21 million -- and Nvidia will play a big role in mining the remaining tokens.
As a growing number of Bitcoin tokens are mined, mining the remaining token supply becomes increasingly difficult. As a result, a greater load of computational power is required to complete the calculations needed to mine a new Bitcoin.
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In light of growing demand for this crypto and other proof-of-work cryptocurrencies, Nvidia could continue to see rising demand for mining-related processors.
Image source: Getty Images.
Why Nvidia makes for a good diversified play in the crypto space
Nvidia's core business revolves around the sale of processors used in data centers. Surging demand for artificial intelligence (AI) applications has helped power incredible revenue and earnings growth.
Crypto mining will likely continue to support demand for the company's processors, but it probably won't be at the heart of the company's growth. At the same time, that makes the stock a potentially viable option for investors who are looking for pick-and-shovel plays in the crypto space that also have other growth drivers.
Nvidia's plays in the quantum computing space also give it angles as an investment in the cryptocurrency space. If quantum computing delivers massive improvements in cryptography-cracking performance, it could result in the code security foundations that underpin the Bitcoin blockchain being disrupted. The same goes for other proof-of-work tokens.
While this could result in a big drawdown in demand for Nvidia GPUs used for crypto mining, the gains for the company's quantum computing initiatives could more than offset those lost sales. That won't necessarily prove to be the case, but the uncertain dynamics on the horizon highlight how Nvidia stock has value as a play on both the growth in the crypto market and defensive characteristics if disruptive trends create bearish pressure on the cryptocurrency market.
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Keith Noonan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bitcoin and Nvidia. The Motley Fool has a disclosure policy.
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