Market Overview

How Long Will The Cryptocurrency GPU Boom Last?

Share:
How Long Will The Cryptocurrency GPU Boom Last?
Related AMD
Gamers Delight: A New E-Sports ETF Is Here
How Millennials, Baby Boomers Are Reacting To Market Volatility
Stocks To Watch: Tech Earnings Bellwethers Set To Test Rally (Seeking Alpha)
Related NVDA
Goldman Sachs Adds Nvidia To 'Conviction Buy' List
Gamers Delight: A New E-Sports ETF Is Here
Cash In On Tight Labor Markets With These (Automation) Growth Stocks (Seeking Alpha)

Two of the hottest investments on Wall Street in recent months have been semiconductor stocks and cryptocurrencies, and the link is no coincidence. Cryptocurrency mining requires a massive amount of computing power, which companies such as Advanced Micro Devices, Inc. (NASDAQ: AMD) and NVIDIA Corporation (NASDAQ: NVDA) have been happy to supply at a steep price.

Crypto Hardware

The majority of cryptocurrency mining is done using hardware called application-specific integrated circuits (ASICs) or graphics processing units (GPUs). ASICs are tied to mining a specific type of coin, and are the typical hardware of choice for mining bitcoin, Bitcoin Cash, Litecoin and other popular currencies. GPUs allow for much more flexibility but are typically less powerful. Miners still user GPUs to mine Ethereum, the second most popular global cryptocurrency behind bitcoin.

Bitcoin mining’s transition from GPU hardware to ASIC has made the currency largely irrelevant to graphics vendors at this point, leaving Ethereum as the critical currency for GPU makers Nvidia and AMD.

All About Ethereum

“Broadly, we use Ethereum as a proxy for mining-related GPU demand, since Ethereum is by far the most popular blockchain platform mined using GPUs,” Bernstein analyst Mark Li said in a new cryptocurrency report.

GPU demand tied to Ethereum mining is very difficult to predict because the hash requirement for mining changes rapidly and volatile price fluctuations in the Ethereum market dramatically influence demand and mining profitability, according to Li.

As of mid-January, Bernstein estimated Ethreum mining would still cover the cost of electricity and GPU pricing as long as the cryptocurrency remains priced at $500 or above. As of Thursday morning, Ethereum was trading at above $818.

Investing Implications

While all of this background is well and good, investors want to know how cryptocurrrency demand is going to impact AMD and Nvidia stocks. Li said both companies will likely continue to enjoy near-term tailwinds in their GPU businesses thanks to the supply pressures mining has created. Demand from both mining and gaming has give AMD and Nvidia near-term pricing power, which is great for margins and earnings.

But the cryptocurrency party may not last forever, and is contingent on rising prices as power demands continue to increase. If prices start to turn south, Li said it could get ugly fast.

“If mining eventually becomes sustainably unprofitable (for example, if currency pricing were to permanently collapse), there is a risk of cards purchased for mining getting dumped in the secondary market and depressing sales for a while,” he said.

Preparing For The Worst

Back in November, Morgan Stanley analyst Joseph Moore said AMD has much more to lose from a decline in cryptocurrency mining than Nvidia. Moore predicted Ethereum mining would decline by 50 percent overall in 2018.

In the past three years, AMD stock is up 291 percent, while Nvidia shares have soared 988 percent.

Related Links:

AMD Has More To Lose Than Nvidia Should Bitcoin Mining Hardware Sales Decline

Does Bitcoin Actually Hold Any Value At All?

Latest Ratings for AMD

DateFirmActionFromTo
Oct 2018BairdDowngradesOutperformNeutral
Oct 2018BarclaysMaintainsUnderweightUnderweight
Sep 2018Northland SecuritiesDowngradesOutperformMarket Perform

View More Analyst Ratings for AMD
View the Latest Analyst Ratings

Posted-In: BernsteinAnalyst Color Cryptocurrency Top Stories Markets Analyst Ratings Tech Trading Ideas Best of Benzinga

 

Related Articles (AMD + GBTC)

View Comments and Join the Discussion!

Latest Ratings

StockFirmActionPT
AAPLWedbushInitiates Coverage On310.0
DHTJP MorganUpgrades0.0
DISBarclaysUpgrades130.0
DXCMGoldman SachsUpgrades125.0
ORLYJP MorganUpgrades398.0
View the Latest Analytics Ratings
Don't Miss Out!
Join Our Newsletter
Subscribe to:
Market in 5 Minutes
Everything you need to know about the market - quick & easy.
Daily Analyst Rating
A summary of each day’s top rating changes from sell-side analysts on the street.
Fintech Focus
Your weekly roundup of hot topics in the exciting world of fintech.
Thank You
for registering for Benzinga’s newsletters and alerts.
• The Daily Analysts Ratings email will be received daily between 7am and 10am.
• The Market in 5 Minutes email will be received daily between 7am and 8am.
• The Fintech Focus email will be received every Friday between 2pm and 5pm.

Nordson Is A Core Industrial Tech Holding, DA Davidson Says Ahead Of Q1 Print

Blockchain Technology Is About To Disrupt Travel, But Wall Street Is Oblivious