Why Are AMD, NVIDIA At Risk On The New Cryptocurrency Chip ?

The Current Cryptocurrency Chip

Taking a serious hit as new specialized digital currency mining chips from rivals, the shares of chipmakers Advanced Micro Devices Inc. and NVIDIA Corp. are expected to launch according to one team of analysts on the Street as reported by CNBC. Susquehanna’s Christopher Rolland in a note to the clients warned them on impending competition from Chinese crypto mining company Bitmain that has developed its application-specific integrated circuit which is a graphics chip used to mine the digital coin Ethereum. As the demand for the graphic cards that allow miners to create cryptocurrency has grown, the price of cryptocurrencies has dropped off since the highs resulting in a shortage of chips and a spike in prices. 

The New Mining Chips Are Cut Into Revenues

As the Sunnyvale, California based AMD is seen to lose market share to Bitmain’s new offering the analysts watch as a recent trip to Asia confirmed that the company is readying its supply chain for shipments as Rolland added that AMD comes to be particularly at risk due to its relatively high exposure to GPU sales. As suggested that Bitmain is likely to be the biggest ASIC vendor with 70% to 80% of bitcoin mining ASICs Susquehanna suggests that the first to market with a new Ethereum product as the investment firm says it has learned of at least three other developers working on the new offering at all various stages of development. As it is found that Bitmain is already dominating the bitcoin mining ASIC space selling specialized chips that are more efficient than its US-based competitors.

As Rolland notes this call is likely early with the proliferation of Ethereum mining ASICs can impact 20% of AMD’s total company revenue as the analysts cut his rating on AMD to negative from neutral and lowered his price target to $ 7.50 from $ 13 thereby expecting the stock to fall 28% over 12 months.  

Hereby The Earnings Beat By Nvidia As Well As Gross Margins Hold Firm

What Has Happened

Beating analysts’ expectations for adjusted EPS Nvidia had reported a strong earnings quarter as the revenue and gross margin were both slightly higher than expected as it is committed to paying its quarterly dividend whereas evaluating the timing of resuming share repurchases. 

What Is There To Look For?

Being a well-known brand in the market for graphics processing units the chipmaker NVIDIA Corporation comes with GPUs that have largely been used by customers wishing to urn graphically intensive video games. The market for GPUs has hence expanded to include a wide range of other applications including those of cryptocurrency mining, professional design, and artificial intelligence. 

It has developed new products to serve these markets as NVIDIA’s revenues have likewise grown significantly and additionally its gamer-oriented GeForce GPUs, NVIDIA’s Quadro GPUs come to be focused on professional designers whereas it's Tesla GPUs come with no relation to the automaker geared toward the needs of advanced AI researchers as the market capitalization has grown significantly over the time frames rising from an average of roughly $ 90 billion to just over $215 billion. 

As it reported its Q4 FY2020 results, NVIDIA posted adjusted earnings per share of $ 1.89, thereafter surpassing its Q4 FY 2019 adjusted EPS of $ 0.80 with the share price rising roughly 20%. Thereby NVIDIA is set to report its first-quarter results for the 2021 fiscal year. As it is going into the earnings report where analysts have a consensus that has adjusted EPS of $ 1.69 per share representing a YOY increase of over 90% as there are many investors where company’s gross margins that are 5.9.01% in Q1 FY2020 looking forward to seeing next week’s earnings report as analysts are expected to see substantial YOY margin improvements with a consensus estimate of 65.36% 

Concluding The Discussion 

Because of the highly competitive and cyclical nature of its industry, the gross margins are especially important to NVIDIA whereby to maintain stable profitability, it must retain as much money as possible for each dollar of revenues it achieves and at the same time, the other chip makers along with NVIDIA must continuously maintain and improve their operational efficiency to remain competitive with their peers. For the overall efficiency of a firm, it is given that gross margin is commonly used as an indicator where investors should have a close eye on this critical figure. Hence the cryptocurrency chip makers are finally seen to solve their problems in the crypto forefront. Surely, they are seen to take the market in a storm.