According to a report from Barron’s, the dramatic price increase cryptocurrencies had this year has helped graphics card makers like AMD and Nvidia grow. Ethereum, for example, has skyrocketed over 2,000% over the last year, and that led miners to purchase AMD and Nvidia graphics processing units to mine the cryptocurrency, leading to a surge in demand.
According to Nvidia’s second quarter revenue, the website reports, the company gained a $150 million boost thanks to the demand cryptocurrency miners created. This insatiable demand led many to believe that AMD and Nvidia should be concerned in case the market took a bearish turn. However, according to Barclays analyst Blayne Curtis, the companies should be safe for now.
Although Ethereum’s price dramatically increased this year, it’s clear it won’t keep on being economically viable to the cryptocurrency’s miners to keep on buying Nvidia and AMD GPUs, although in the past their units sold out. According to Blayne Curtis, Ethereum’s Byzantium upgrade should improve mining profitability by 20-30%, but once proof-of-stake is ready, things could be different. In a note to clients, he said:
“After the Byzantium upgrade on October 17th, mining profitability should improve by 20-30% from current levels as average block time will be cut in half, only partially offset by block reward being cut from 5 Ethers to 3 Ethers (Figure 4). More importantly, artificial difficulty bombs are delayed until (estimated) 4Q18 as Proof-of-Stake is not ready yet. This means difficulty increases much more slowly, improving the trajectory of expected profits (holding all else equal) and likely sustains GPU sales for mining.”
If the cryptocurrency does move to proof-of-stake, it’s clear that GPUs won’t give miners much of an edge on the network as payments are then verified in a different way. As such, demand would decrease. However, since the upgrade was pushed back to the end of 2018, the analyst raised his price targets for both Nvidia and AMD.
Essentially, he expects both companies to keep on riding the cryptocurrency wave that has been helping them, at least for another year. Curtis’ price target for AMD went from $9 to $10, while his price target for Nvidia went from $140 to $200.
The analyst favors Nvidia due to its dominance in AI, and due to the launch of a new Volta processor that should expand the company’s lead in the GPU market, keeping its performance above that of AMD’s for the foreseeable future. He stated:
“The Crypto tailwind is hard to quantify but likely 2x the $170-180 million AMD/Nvidia identified in June with some gaming card manufacturers seeing 50-70% of current demand from mining as gaming demand is actually declining this year.
As reported by CCN, market analysts have in the past pointed out that GPU mining is an important driver for the future of these two companies. Earlier this year, both Nvidia and AMD were set to release cheaper cryptocurrency mining GPUs.
In 2017 so far, AMD is up by 17.37%, while Nvidia is up by 77.55%. The surge led CNBC’s Jim Cramer to state that investors shouldn’t buy Nvidia and AMD shares because of cryptocurrencies as, according to the commentator, the market’s growth isn’t currently sustainable.
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Last modified: May 21, 2020 9:12 AM UTC