Susquehanna analyst Christopher Rolland is surveying a ninth year run for what has been largely a bull cycle for chip players, but beware bulls- the analyst is questioning just “how long that will last.” After chiming in with a cautious take on the likes of two of the semiconductor industry’s biggest giants Advanced Micro Devices, Inc. (NASDAQ:AMD) and NVIDIA Corporation (NASDAQ:NVDA), the stocks took a sink in the market yesterday, with AMD shares on a roughly 3% dip and NVDA shares slipping close to 2%.
While from Rolland’s tech eagle eye, this year was prime time for the Artificial Intelligence (AI) graphics processing unit (GPU), but could 2018 ring as the year of the application-specific integrated circuits (ASICs)?
Rolland explains, “Artificial intelligence makes use of deep learning to solve real-world problems, and is seeing strong uptake in voice and image recognition, autonomous driving, medical, and other applications. NVIDIA has been the clear semiconductor beneficiary from the growth in A.I. workloads and its stock was rewarded handsomely in 2017 (+80% YTD!). However, our discussions with numerous though leaders in the industry suggest ASICs may replace much of today’s GPU infrastructure over time.”
For Nvidia, the analyst believes the chip maker benefited simply from being “in the right place at the right time,” as he writes that gaming-targeted GPUs boast gigantic parallel processing powers while exhibiting performance for big numbers of matrix multiplication operations per cycle. For this reason, Rolland sizes up GPUs designed for gaming as “ideal” for both machine learning and A.I. applications.
However, a warning arises for 2018. Could a deceleration hit GPUs for crypto-currencies? Rolland says “likely,” calling the enterprise of selling GPUs to cryptocurrency mining rigs an “unexpected” revenue driver for AMD as well as Nvidia this year. True, Bitcoin dominations a great deal of the media buzz, but for Rolland, “GPUs are the workhorse behind mining for Ethereum, Monero, Zcash, and others.”
The AMD team projects around 5% of this year’s sales stem from crypto-related revenue, whereas Nvidia has spotlighted $220 million in crypto-related revenue in the second and third quarter of the year, also translating to around 5% of revenue. As far as Rolland assesses the grander scheme of chip makers and GPU shipments, the real marker of GPU shipments correlated with crypto-currencies boils down to gains in the cumulative network hash rate, one that has notably “flattened” in the fourth quarter of this year.
“Additionally, Ethereum is expected to move to Proof-of-Stake in 2018, so mining this currency with GPUs may be obsolesced, driving a negative impact for AMD and NVIDIA. Lastly, we note the emerge of an ASIC for Ethereum, many times more effective than GPUs,” highlights Rolland, who views this as a “modest negative” for both AMD and NVDA.
Ultimately, the analyst sees NVDA at a better advantage than AMD as a company “set to benefit from artificial intelligence in 2018.” By this time next year, it just seems clear to Rolland that enthusiastic bulls should get ready: GPUs may begin to hold less importance in the scope of cryptocurrency mining.
Ahead of an anticipated downward turn of GPUs for crypto-currencies, the analyst reiterates a Neutral rating on AMD stock with a $15 price target, which implies a nearly 52% upside from where the shares last closed, and maintains a Neutral rating on NVDA stock with a price target of $185, which implies a 3% downside from current levels. (To watch Rolland’s track record, click here)