Equity analysts express crypto-mining concerns on IT stocks

June 21, 2018
Chris Wheal

The crypto boom has not only lifted the price of virtual coins over the past year, many of the technology firms that offer mining software and hardware have been substantially boosted in price.

Advanced Micro Devices (AMD), best known as a competitor of Intel in the microchip market, offers a graphic processing unit (GPU) that has become a popular part of the kit in crypto mining.

GPU rigs at a cryptocurrency mining operation: Shutterstock

Stellar gains for AMD

Since April, AMD’s stock price has risen 82% – in part thanks to the rising levels of interest in the crypto asset market and the rising number of miners looking to get involved. In a similar period to that of AMD’s stellar gains, rival GPU producer NVIDIA has risen 25%.

Cryptocurrency mining requires lots of processing power and costly equipment, but once set up, miners use their coding capabilities to approve transactions over the blockchain ledger and earn themselves tokens. This is achieved through several differing protocols – the most common of which is “proof of work”.

But now equity market analysts are beginning to express concerns about the growth of the crypto-mining industry.

Bernstein analysis

Stacy Ragson at Bernstein worries about a possible crypto decline hitting sales of AMD’s GPU.

She says: “Given AMD’s GPUs have been preferred for mining, and GPU supply in general to gamers was constrained industry-wide, we believe it is plausible that much of AMD’s GPU ramp has benefitted miners, rather than gamers, over this period.”

AMD said in its last earnings report that crypto mining was responsible for around 10% of its GPU sales, but forecast a modest decline for the current quarter.

Morgan Stanley analysis

Joseph Moore at Morgan Stanley iterated similar concerns: “Cryptocurrency strength has to some degree offset the slow and steady progress establishing momentum in desktop and server microprocessors after several years away from those markets — but that higher revenue has driven higher operating expense, which further raises the bar for the processor business if crypto momentum should fade.”

Berenberg analysis

But why should the crypto market fade? Broker Berenberg sees problems with crypto mining scaling higher given the limitations of the the proof of work protocol.

In February, Berenburg analyst Paul Marsch said: “We still think that the software and IT services names provide the best blockchain exposure for institutional investors.”

He added: “Continued robust demand for mining hardware in the near-term is supportive of the mining hardware names – such as NVIDIA, AMD and TSMC.

“However, Berenberg is concerned that these names are exposed in the mid-term as crypto’s quest for scaleability depends on migrating away from proof-of-work hashing.”

Post written by Chris Wheal
Chris Wheal is editor of OpenLedger's news and features service. An award-wining business journalists himself, he runs a team of freelance journalists from across the UK and north America.

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