A shortfall in tech firms' quarterly earnings has seen the finger pointed at crypto – a reflection of how intertwined crypto and tech have become.
As executives at major technology companies try to account for revenue shortfalls over the last quarter, blame is increasingly being laid on an upstart in the sector: cryptocurrencies.
At the end of October, Google’s chief business officer Philipp Schindler attributed the company’s stalled growth numbers to “softer crypto ad spending” that contributed to the tech giant’s weakest ad growth in nine years.
“We did see a pullback in spend by some advertisers in certain areas in search,” Schindler said on a third-quarter call with analysts after the company’s reported earnings.” We saw a pullback in the insurance, loan, mortgage and crypto subcategories.”
Conversely, tech giants like Apple have been sparred from a slump primarily because they do not rely on ads.
Revolut, the UK digital banking app, also cited earnings from crypto trading have dried up, falling from 30-35 percent in 2021 to 5 percent of the company’s total revenue. Robinhood, the US-based crypto and stock trading platform, reported a 12 percent fall in crypto revenue in Q3.
Semiconductor firms have felt the pinch too.
US chip maker AMD has seen its profits crater due to a slowdown in the crypto mining markets, in part on falling demand for graphics processing units (GPUs) that can be used to mine cryptocurrencies. But with a crypto bear market in full swing, AMD has seen its third-quarter profits drop by 93 percent compared to last year.
One of the reasons for the fall in GPU demand could be pegged to the fact that crypto miners looked to unload high-end cards as they prepared for the Ethereum blockchain network’s migration in September (known as “the merge”) from a “proof-of-work” to a “proof-of-stake” model, meaning that graphic cards are no longer needed for mining ether.
“This is the first real quarter where you’re hearing these companies actively bringing up crypto as a reason for missed revenues,” said Griffin McShane, head of insights and communication at MPCH Labs.
Meanwhile, semiconductor giant NVIDIA had warned in the previous quarter that shortfalls in its gaming segment revenue would hamper its earnings results, citing second-quarter revenues of $6.7 billion being well below its outlook of $8.1 billion.
While the company did not explicitly mention a pullback in demand from cryptocurrency miners, analysts have noted the estimated 44 percent quarter-over-quarter drop was similar in magnitude to a pullback that lined up with the crypto crash in 2018.
This shouldn’t be surprising, as crypto miners comprised a significant portion of the chipmaker’s customer base. High-powered GPUs like NVIDIA’s GeForce range were a hot commodity for Bitcoin and Ethereum miners, and during the crypto bull run of 2021, miners scrambled to snap up as many GPUs as possible to generate lucrative mining profits.
Mining – the original crypto-tech integration segment – is around 80 percent less profitable today compared to a year ago.
The crypto market, which was valued at $3 trillion a year ago, has seen its market cap tumble to $900 billion since it slipped into a bear market in 2022.
For crypto to be the trigger behind an earnings shortfall signifies a massive shift in a short amount of time that has seen the tech sector become intertwined with crypto.
“If you’re running a profit-focused [tech] operation, you have to be supportive of blockchain and digital assets, because that seems to be where we are going,” said David Tawil, CEO of ProChain Capital.
With crypto moving from the fringes into mainstream adoption over the last two years, the correlation of digital assets with traditional holdings like stocks has increased significantly. Bitcoin’s price has tracked blue chip tech stocks like Apple, Microsoft and Amazon throughout 2022.
Despite the ongoing crypto winter and its negative impact on tech revenues, this entanglement is likely to grow stronger. Whether tech conglomerates or social media giants, blockchain technology is now so big that companies can no longer ignore it, and some have already started to embrace the technology by integrating it into their businesses.
Reddit, Twitter and Instagram are all moving towards allowing digital creators to mint and sell non-fungible tokens (NFTs) directly on their platforms.
Google Cloud recently announced it was moving to support Web3 infrastructure with a series of collaborations with blockchain networks Ethereum and Solana. Google Cloud has formed a dedicated Web3 team, signaling its commitment to the rapidly evolving space.