There is no doubt that both AMD and Nvidia are benefiting from the explosive growth in cryptocurrency mining. Just look around at the marketplace and spy the inflated price tags for mid-range and high-end graphics cards, driven in part by the heightened demand that comes from mining. Even so, however, AMD issued a statement downplaying how much of its business is affected by mining.
"Yesterday a report was published on AMD which hypothesized very high revenue for Ethereum-related GPU sales. As a reminder, on our Q4’17 earnings conference call we stated that the percentage of annual revenue related to blockchain was approximately mid-single digit percentage in 2017," AMD said.
AMD's statement is in response to what Susquehanna analyst Christopher Roland wrote in a note to investors earlier this week, which was picked up by CNBC. In the note, Roland claims to have confirmed that an ASIC (application-specific integrated circuit) for mining Ethereum has already been developed and will begin shipping to customers in the coming months.
"While Bitmain is likely to be the largest ASIC vendor (currently 70-80 percent of Bitcoin mining ASICs) and the first to market with this product, we have learned of at least three other companies working on Ethereum ASICs, all at various stages of development," Roland said.
Currently you can effectively mine Ethereum with off-the-shelf graphics cards, just as was once feasible for Bitcoin. But just as specialized ASIC hardware rendered GPUs a virtually obsolete technology for mining Bitcoin, it could do the same for Ethereum.
In his note, Roland said he estimates that Ethereum mining accounts for 20 percent of AMD's sales, and 10 percent of Nvidia's revenue. Based on this, he slashed his price target for AMD shares from $13 to $7.50.
AMD disputes this, saying the amount of mining-related sales accounting for its business is actually much lower, in the range of mid-single digits. The company also says that it saw "significant growth" in its GPU business outside of blockchain-related sales during the fourth quarter of 2017, right as it ramped up its Radeon Vega and GPU compute products.
"We have very compelling long-term drivers for the company including PCs, servers and graphics and our Q1 2018 financial guidance reflects that. We appreciate the time and attention that investors continue to pay to blockchain and cryptocurrency, but would also like to keep it in perspective with the multiple other growth opportunities ahead for AMD.," the company added.
AMD is obviously looking to stop investors from freaking out over Roland's note, but for the company to double down on its 2017 sales estimates related to mining, it suggest that the number has not risen significantly so far in 2018. It will be interesting to see if that's still the case when AMD issues its next financial report.
The other notable thing here is that perhaps graphics card prices will normalize (fall back to MSRP) later this year, especially if an Ethereum ASIC does emerge. It's hard to get a true pulse on the situation due to conflicting reports. For example, Nvidia CEO Jensen Huang recently admitted that it's "not anywhere close" to meeting the demand for its GPUs. The reason, however, is not just mining, but demand from other sectors, particularly machine learning and AI research. It also doesn't help that memory chip makers are having a tough time supplying enough chips to meet demand.
In short, we'll just have to wait and see how things unfold. In the meantime, if you're in the market for a graphics card, we suggest signing up for email notifications on Nvidia's website for its Founders Edition cards. The company has sporadically been making limited numbers of cards available, and if you're quick on the draw, you can snag one at MSRP. Unfortunately that's not much of a 'deal', but it's the best we can hope for at the moment.