Morgan Stanley analyst Joseph Moore said the global market for graphics chips might fall by 50% in 2018.

Advanced Micro Devices (AMD) was one of the companies that benefited the most from the dramatic uptick in interest in cryptocurrencies over the past year. The graphics card manufacturer experienced a surge in sales for many of its products as worldwide interest in cryptocurrencies spiked. This is because entrepreneurial currency miners need powerful chips in order to set up their rigs.

AMD and other chip manufacturers witnessed global shortages in graphics chips as demand went through the roof. (See more: Ether Mining Boom Causes Graphics Card Shortage in Germany.) But Morgan Stanley's Joseph Moore said the boom may be coming to an end.

Payoff is Faltering

Why would the market for graphics chips begin to decline, even as cryptocurrencies like bitcoin are hitting fresh record highs? It certainly does not seem that investor appetite for digital currencies is waning.

And yet, Moore acknowledges that the payoff for digital currency miners who bought chips from Advanced Micro Devices just months ago has been falling. According to reporting by Barron's, it is becoming less profitable for miners to buy AMD's graphics chips for digital currency mining efforts.

Mining is becoming less profitable for digital currencies like ethereum because of the way some cryptocurrencies are expanding and scaling. Ethereum's Metropolis fork, for example, is reducing profitability for miners.

Morgan Stanley's Moore suggests that the first stage of the Metropolis expansion, called "Byzantium," holds "many significant changes, but from the standpoint of mining, the most significant is a reduction in the block reward from 5 units to 3, while simultaneously reducing the difficulty of the algorithm. The average power cost of a mining rig under load will be in the ball park of $0.70 per day, for about $0.54 per day profit...but each month, the 10% increase in difficulty will cut profits by 20% or so. All of this suggests that mining would "cease to be profitable in areas with high power costs."

Mining Unnecessary?

There is also a question about whether mining will even remain a crucial component of the cryptocurrency cycle. In the case of ethereum, the next 12 to 18 months may bring the "Casper" hard fork, which will assist in scaling the digital currency. One major change is that ethereum would then be under a proof of stake protocol, which would dramatically reduce the need for mining rigs.

If mining does become less important, Moore believes it will hit Advanced Micro Devices more than its competitor, Nvidia (NVDA). With total graphics sales for ethereum mining in 2017 topping out at $800 million, Moore anticipates a drop by 50% in 2018. Nvidia has outlined exposures and prepared for significant declines, while AMD has not.