AMD, NVIDIA at Risk on New Cryptocurrency Chip

Shares of chipmakers Advanced Micro Devices Inc. (AMD) and NVIDIA Corp. (NVDA) could take a serious hit this year as new specialized digital currency mining chips from rivals are expected to launch in 2018, according to one team of analysts on the Street, as reported by CNBC. (See also: NVIDIA at Risk Over Cryptomining Exposure: GS.)

In a note to clients Monday, Susquehanna's Christopher Rolland warned on impending competition from Chinese crypto-mining company Bitmain, which has developed its own application specific integrated circuit (ASIC), a graphics chip used to mine the digital coin ethereum. While the price of cryptocurrencies has dropped off since December highs, demand for the graphic cards that allow miners to create cryptocurrency has grown, resulting in a shortage of chips and a spike in prices. At a price of $462.23 at 2:23 UTC, ethereum is down 65% from a high of $1,338.67 per coin reached late last year, and up over 800% in the most recent 12 months, according to Coinbase

New Mining Chips Cut into Revenues

The analyst sees Sunnyvale, California-based AMD losing market share to Bitmain's new offering, as a recent trip to Asia confirmed that the company is readying its supply chain for shipments in the second quarter of 2018. Rolland added that AMD is particularly at risk due to its relatively high exposure to GPU sales. 

While Susquehanna suggests that Bitmain is likely to be the biggest ASIC vendor, with 70% to 80% of bitcoin mining ASICs and the first to market with the new ethereum product, the investment firm says it has learned of at least three other developers working on the new offering, at all various stages of development. Bitmain already dominates the bitcoin mining ASIC space, selling specialized chips that are more efficient than its U.S.-based competitors'.

"While this call is likely early (in front of needed GPU channel replenishment), the proliferation of Ethereum mining ASICs have the ability to impact ~20% of AMD's total company revenue," wrote Rolland. The analyst cut his rating on AMD to negative from neutral and lowered his price target to $7.50 from $13, expecting the stock to fall 28% over 12 months. Trading down about 0.6% at $10.38 on Tuesday morning, AMD has returned 1% to shareholders year-to-date (YTD) and has sank 24.3% over the year. 

As for NVIDIA, Rolland estimates that ethereum-mining-related sales account for about 10% of the company's revenues. He did not cut his rating on NVDA stock, yet reduced his 12-month price target from $215 to $200, reflecting a near 20% downside from Tuesday morning. Trading up 1.5% at $248.23, NVDA has gained 28.3% YTD and a whopping 129% over the most recent 12 months.  See also: Bitcoin Will Become World’s ‘Single Currency’: Dorsey.)