Wall Street doesn't like to admit to its mistakes, but Pacific Crest was forced to capitulate on its poorly timed downgrade of Nvidia after just over two months.
The firm raised its rating for the semiconductor company to sector weight from underweight due to rising cryptocurrency mining demand for its graphics cards.
"Meetings with desktop graphics card manufacturers indicated a sharp reversal in sales trends expected for the seasonally weaker 2Q, with surging demand from cryptocurrency miners in China and Eastern Europe," analyst Michael McConnell wrote in a note to clients Tuesday. "The sharp increase in demand from cryptocurrency miners has rapidly depleted excess channel inventory carried into the quarter."
McConnell retracted his previous $99 price target for Nvidia. The stock is up about 45 percent through Monday since the analyst's downgrade in early April.
Ethereum cryptocurrency is up over 4,500 percent year to date through Monday, while bitcoin is up about 170 percent this year, according to data from industry website CoinDesk.
Cryptocurrency miners use graphics cards from AMD and Nvidia to "mine" new coins, which can then be sold or held for future appreciation.
"In terms of demand sustainability from the cryptocurrency market, desktop graphics card manufacturers are skeptical, referring to the one-quarter demand surge in 2013, which was followed by an inventory correction," McConnell wrote. "Most desktop graphics card manufacturers surveyed expect strong demand to last until late-July or August, but visibility is extremely low given the volatility in cryptocurrency prices."
Nvidia shares rallied 231 percent through Monday in the previous 12 months compared with the market's 18 percent return in that period. That performance ranks number one in the entire S&P 500, according to FactSet.
— CNBC's Michael Bloom contributed to this story.