(Note: The author of this fundamental analysis is a financial writer and portfolio manager.)
Shares of Advanced Micro Devices Inc. (AMD) were declining by nearly 5 percent, while and Nvidia Corp. was down about 1.5 percent (NVDA). Both stocks were falling, as investors began getting nervous around the falling price of the cryptocurrency bitcoin. (See also: Bitcoin Plunges Below $13,000, Heads for Worst Week Since 2013.)
But those concern may be overblown, and the recent decline may have to do with an emotional association and not a change in the fundamentals of either companies business. Chips made by both AMD and Nvidia are used in the process of mining for bitcoin. Both stocks have been associated with bitcoin as mining for cryptocurrency had become a trend due to bitcoin's massive rise in 2017. Bitcoin was trading at only $1,000 when 2017 started, reaching a high of over $19,000 on December 17. But since then, the cryptocurrency has fallen by roughly 30 percent.
What seems interesting about today's sell-off especially in AMD, is that the stock has not benefited in 2017 from bitcoin's advance. Shares of AMD are down by over 8 percent in 2017, so despite the fact that AMD chips are used for mining bitcoin, and revenue has resulted from bitcoin, the market has not been rewarding shares of AMD in 2017.
AMD has been cautious around cryptocurrency trends already,when on its third-quarter conference call, it said the company saw leveling-off for cryptocurrency demand.
Nvidia shares have risen by nearly 82 percent over the past year and its graphics processing unit's (GPU) is used in mining bitcoin. In the latest conference call, Nvidia CFO Colette Kress noted that crypto-boards were about $70 million in sales. The company had total revenue in its fiscal third quarter of $2.636 billion, which means sales related to cryptocurrencies accounted for about 2.5 percent of the company's overall sales during the quarter.
The market didn't reward AMD for the rise of bitcoin in 2017 because the market was perhaps lowering its expectations of a positive potential impact Advanced Micro might see from the cryptocurrency boom. And cryptocurrency mining appears to be a tiny part of Nvidia's overall business.
This means the latest pullback in shares of AMD and Nvidia is likely more emotional than having to do with a fundamental change in either company's fundamentals.
Michael Kramer is the Founder of Mott Capital Management LLC, a registered investment adviser, and the manager of the company's actively managed, long-only Thematic Growth Portfolio. Kramer typically buys and holds stocks for a duration of three to five years. Click here for Kramer's bio and his portfolio's holdings. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future performance.