Chip Stocks Lifted by Rising Cryptocurrency Tide

Robust cryptocurrency mining activity is lifting the performance of Nvidia and AMD, both of which make graphics cards used in the mining process. Demand isn't expected to diminish any time soon.

Chip Stocks Lifted by Rising Cryptocurrency Tide

Advances in ether and bitcoin prices year to date have created an opportunity for semiconductor makers with exposure to the cryptocurrency craze. Indeed, the rising tide of cryptocurrency mining is lifting the boats of graphic card makers. Analyst firm Jefferies says cryptocurrency mining will evolve into a viable growth market for the long term, pointing to semiconductor makers for the industry Nvidia and Advanced Micro Devices (AMD) as key beneficiaries.  

The top stock in the S&P 500 index right now is Nvidia, evidenced by a triple-digit percentage gain over the past 12 months. The stock is up almost 180% in that period compared to a more modest 17% for the S&P, according to FactSet data. Meanwhile AMD’s performance hasn’t been too shabby, up 112% in the past 12 months, second only to its industry peer Nvidia in the broad market index.

AMD and Nvidia make the graphic cards that cryptocurrency miners need, demand for which drives revenues higher at these semiconductor companies and leads to solid quarterly earnings performance. Demand for these graphic cards, especially by those mining ethereum, has given new life to semiconductor stocks. 

For instance, in an attempt to bolster processing power to their mines, ether miners have responded to surprising advances in ether price by chartering large planes to deliver the graphic cards straight from the manufacturer’s warehouse to the mines themselves.  

Meanwhile, if cryptocurrency investors want to consider a more traditional way to play the market, they may not be too late to jump on the equity chip-mining bandwagon. Jefferies analyst Mark Lipacis said in a note to clients that demand for crypto-driven inventory isn’t likely to abate any time soon.

"We think that the risk of a 'crypto-driven' inventory correction driving material downside is low in the near term," said Lipacis. Demand for the graphics semiconductor processors used to mine cryptocurrencies like bitcoin and ether will likely “remain healthy in 3Q."

Lipacis points to the recent price movement in bitcoin, which is up more than 300% year to date. Nothing seems poised to interfere with the trajectory of the chip stocks AMD and Nvidia, not even the price volatility that’s inherent with cryptocurrencies bitcoin and Ethereum.

That’s because both graphic card makers have unveiled ‘cryptospecific GPU SKUs’, which are essentially useless to gamers and unlikely to compete directly with GPUs in the secondary markets. For instance, in the event of falling cryptocurrency prices, Jefferies’ analysts believe the risk of these graphic card makers having to compete with their own GPUs that are then resold by miners to gamers in the secondary markets is lower than the risk they were exposed to during the cryptocurrency downturn of 2015. 

For further information about how to buy and trade Ethereum, see our comprehensive Ethereum guide

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