Chip Makers Are Better off Without Crypto Miners
Losing cryptocurrency mining sales allows Nvidia, AMD to focus on more solid opportunities
By Dan Gallagher
Miners of cryptocurrencies may soon stop buying chips from Nvidia Corp. NVDA -1.59%▲ and Advanced Micro Devices Inc.. But some businesses are more trouble than they are worth.
The graphics processors that both companies make are designed primarily for rendering videogames, as well as providing artificial intelligence capabilities to data centers and automobiles. But they’ve also proven popular for processing cryptocurrency transactions—an activity otherwise known as mining. The rocketing value of those currencies over the past year has turned such mining into a highly profitable activity. That in turn has sparked a rush on GPU chip cards that boosted sales for Nvidia and AMD both last year as well as the recently ended quarter.
But that looks likely end soon. A Chinese venture-backed company called Bitmain announced a new chip last week specifically designed for mining ethereum, which is the most popular cryptocurrency mined with GPUs. Several analysts believe that system, which ships in July, is likely to pick up the bulk of demand from cryptocurrency miners due to superior technical performance for that task.
CHIP SHOT
Revenue per year
Source: S&P Capital IQ, FactSet
Note: *projections **Nvidia's fiscal year ends in January
Concerns about the impact of cryptocurrency mining are one of the factors that caused sharp declines in shares of both Nvidia and AMD in the past month. The latter in particular has a smaller revenue base that was likely inflated more by crypto demand. Christopher Rolland of Susquehanna estimates that ethereum-related chip sales accounted for about one-quarter of AMD’s revenue in the first quarter. The expected loss of that business led him to downgrade the chip maker to the equivalent of a sell rating last month.
Most analysts believe the impact of crypto to be much smaller for Nvidia, amounting to single-digit percent of revenue for the company’s fiscal first quarter ending later this month. The company also has a much more robust data center business that is highly prized by investors. And its core gaming business could also be helped by new products expected later this year, as well as pent-up demand from gamers stymied by the recent GPU shortage. Morgan Stanley analyst Joseph Moore cited both in upgrading Nvidia to a buy rating earlier this week, adding that he expects crypto demand to “fall towards zero” by the end of July.
Both companies, it should be noted, have been wisely cautious about banking on crypto demand. The volatile nature of those currencies as well as potential technical changes in how those currencies are mined have long made crypto a dicey prospect for long-term bets. Nvidia and AMD have much less cryptic opportunities to chase.
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