The speculative mania surrounding cryptocurrencies, most notably bitcoin, also has lifted stock prices of semiconductor manufacturers whose advanced chips are critical for mining them. The frenzied interest in bitcoin has added fuel to the movement of these stocks. 

Hedging Bitcoin's Future

However, executives at chipmakers Nvidia Corp. (NVDA) and Advanced Micro Devices Inc. (AMD) aren't as mesmerized as many investors when it comes to forecasts of bitcoin's glowing future. Most striking, neither Nvidia nor AMD are including the financial impact of cryptocurrency mining in their projections for corporate profits, CNBC reports. The main reasons for their caution are, per CNBC, the volatility of digital currencies and possible shifts in technology that could decimate demand.

At the moment, crypto-driven sales in 2017 account for less than 5% of Nvidia's total revenue, while the figure is only around 1% for AMD, per CNBC's estimates. Shares of Nvidia are up 85.8% and those of AMD are down 7.5% for the year-to-date through Wednesday's close. 

Bitcoin's Risk

The price of bitcoin soared from $968 at the close of 2016 to a high of $19,343 on December 16, for a breathtaking gain of nearly 1,900%, according to CoinDesk.com. Then it tumbled 28% in just six days to $13,857 on December 22. The price had recovered 3% to $14,326 as of mid-morning New York time on December 28, per the same source. 

Skeptics see an end to the speculative binge, if not the first sign of a bubble starting to deflate. In any case, the caution being exercised by Nvidia and AMD in their forecasts seems wise. Once investors conclude that it's no longer a sure bet that bitcoin and other digital currencies will rise, interest in mining them is likely to wane. That would translate into decreased sales of advanced graphics processing units (GPUs).

Technological Shift

Both Nvidia and AMD are leading producers of GPUs, whose applications are wide-ranging and growing beyond computer gaming. Among these are, according to Nvidia, uses such as big data analytics, advanced chemistry, life sciences, computer vision, machine learning, medical imaging, and weather forecasting. While the mining of bitcoin and other digital currencies also utilizes GPUs, a Morgan Stanley report cited by CNBC indicates that the digital currency ethereum may shift to a different mining technology in the next year or so.

Ethereum has a market value of $71 billion, second only to bitcoin's $245 billion, per CoinMarketCap.com, which calculates the combined market value of all cryptocurrencies as $565 billion as of Thursday morning. A shift in the technology used by the number two digital currency may spur competitors to follow suit.

If so, that would confirm the concerns of Nvidia and AMD that the surge in cryptocurrency mining may be fleeting, and thus would do little to fuel their earnings or share prices longterm.

 

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