Advanced Micro Devices, Inc.’s and NVIDIA Corporation’s Crypto-Mania May Be Nearing Its End: Christopher Rolland
Crypto-related GPU sales appear to be more massive than AMD and NVDA had expected in 4Q17; here's why Susquehanna's Christopher Rolland says this could be an issue.
Susquehanna analyst Christopher Rolland is out with a cautious note on two of the chip-verse’s leading giants, pointing to digital currency mania, specifically GPU sales circling Ethereum as a key talking point.
Did tech players like Advanced Micro Devices, Inc. (NASDAQ:AMD) and NVIDIA Corporation (NASDAQ:NVDA) underestimate just how substantial Ethereum-related GPU sales were in the fourth quarter?
For sales that soared past $500 million, not only does Rolland highlight these crypto-correlated sales as “bigger than ever,” he likewise adds on a note of wariness: “Mining profitability and retail card markups remain near all-time highs, perhaps harbingers of Ethereum-related GPU sales on the come.”
Rolland shares the following key insights on back of his breakdown of Ethereum-related GPU sales for the chip giants: “1) AMD/NVDA likely benefited from more than $500M in Ethereum-related GPU sales in 4Q17; 2) this trend continued in the first few weeks of 2018, perhaps driving more than $200M in GPU sales; 3) despite the recent drop in Ethereum price, mining profitability remains among the highest in history (efficient market hypothesis suggests more GPUs likely to come onto the network); and 4) retail mark-up per card is near an all-time high, indicating strong demand (and short supply). Therefore, we believe the confluence of these factors portends upside to both AMD’s and NVDA’s C4Q17 results (and perhaps 1Q18 guidance). However, we also note substantial longer-term risks for both companies as mining profitability may have induced ‘false purchases’ of more and higher-priced cards.”
Will AMD face an impact by false purchases should Ethereum prices take a dip? Rolland fears this, especially as crypto-related GPU sales are taking up a huge slice of both companies’ revenue.
With digital currency risks circling down the line, the analyst reiterates a Neutral rating on AMD while cutting the price target from $15 to $13, which implies a nearly 4% upside from current levels, and maintains a Neutral rating on NVDA without listing a price target for either stock. (To watch Rolland’s track record, click here)