Two of the greatest investments on Wall Street ter latest months have bot semiconductor stocks and cryptocurrencies, and the verbinding is no coincidence. Cryptocurrency mining requires a massive amount of computing power, which companies such spil Advanced Micro Devices, Inc. (NASDAQ: AMD) and NVIDIA Corporation (NASDAQ: NVDA) have bot blessed to supply at a steep price.
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 Contant, Litecoin and other popular currencies. GPUs permit for much more plasticity but are typically less powerful. Miners still user GPUs to mine Ethereum, the 2nd most popular global cryptocurrency behind bitcoin.
Bitcoin mining&rsquo,s transition from GPU hardware to ASIC has made the currency largely irrelevant to graphics vendors at this point, leaving Ethereum spil the critical currency for GPU makers Nvidia and AMD.
All About Ethereum
&ldquo,Broadly, wij use Ethereum spil a proxy for mining-related GPU request, since Ethereum is by far the most popular blockchain podium mined using GPUs,&rdquo, Bernstein analyst Mark Li said ter a fresh cryptocurrency report.
GPU request tied to Ethereum mining is very difficult to predict because the hash requirement for mining switches rapidly and volatile price fluctuations te the Ethereum market dramatically influence request and mining profitability, according to Li.
Spil of mid-January, Bernstein estimated Ethreum mining would still voorkant the cost of electric current and GPU pricing spil long spil the cryptocurrency remains priced at $500 or above. Spil of Thursday morning, Ethereum wasgoed trading at above $818.
While all of this background is well and good, investors want to know how cryptocurrrency request is going to influence AMD and Nvidia stocks. Li said both companies will likely proceed to love near-term tailwinds ter their GPU businesses thanks to the supply pressures mining has created. Request from both mining and gaming has give AMD and Nvidia near-term pricing power, which is superb for margins and earnings.
But the cryptocurrency party may not last forever, and is quotum on rising prices spil power requests proceed to increase. If prices begin to turn south, Li said it could get ugly prompt.
&ldquo,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 ter the secondary market and depressing sales for a while,&rdquo, he said.
Preparing For The Worst
Back ter November, Morgan Stanley analyst Joseph Moore said AMD has much more to lose from a decline ter cryptocurrency mining than Nvidia. Moore predicted Ethereum mining would decline by 50 procent overall ter 2018.
Te the past three years, AMD stock is up 291 procent, while Nvidia shares have soared 988 procent.