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Analyst slashes AMD, Nvidia price targets on new cryptocurrency mining chip from China

Tae Kim
Baird lowers its rating to neutral from outperform for AMD shares, predicting more competitive pressure from Intel.

AMD and Nvidia will suffer as specialized digital currency mining chips hit the market this year, according to a Wall Street firm.

Susquehanna reduced its rating to negative from neutral and lowered its price target for AMD shares, citing impending competition from cryptocurrency mining company Bitmain.

"During our travels through Asia last week, we confirmed that Bitmain has already developed an ASIC [application-specific integrated circuit] for mining Ethereum, and is readying the supply chain for shipments in 2Q18," analyst Christopher Rolland wrote in a note to clients Monday. "While Bitmain is likely to be the largest ASIC vendor (currently 70-80% 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."

Cryptocurrency miners use graphics cards based on AMD's and Nvidia's chips to "mine" new coins, which can then be sold or held for future appreciation. Digital currency ethereum is up more than 800 percent over the past 12 months, according to Coinbase data.

Bitmain dominates the "bitcoin" industry with its specialized ASIC chips that are more efficient at mining than graphic chips from AMD and Nvidia. Bernstein has said Bitmain likely made as much as Nvidia did last year. Analysts estimate that most of Bitmain's revenue is generated by selling mining rigs powered by the company's chips.

Rolland believes Bitmain's specialized chip offering for ethereum will hurt demand for PC graphics cards. He estimated ethereum mining-related sales accounted for about 20 percent of AMD's sales and 10 percent of Nvidia's revenue.

As a result the analyst lowered his price target for AMD shares to $7.50 from $13, representing 29 percent downside from Friday's close.

He also reduced his forecast for Nvidia shares to $200 from $215, but did not downgrade the company.

"Nvidia has a stronger and more durable gaming franchise which would help it work through this potential Ethereum-related unwind," he wrote.

The analyst reiterated his neutral rating for Nvidia shares.

AMD and Nvidia did not immediately respond to requests for comment.

AMD shares declined 1.6 percent Monday, while Nvidia's stock rose 3 percent.