As cryptocurrencies plunge to their lowest levels in more than a year, crypto-mining chipmakers such as AMD and Nvidia are feeling the long-lasting pain, RBC said in a note titled “Crypto mining issues likely to persist longer than expected.”
“A high quality crypto mining GPU was still profitable as of last quarter and at this point in time no GPU is profitable,” Mitch Steves, an RBC analyst, said in a note distributed Sunday.
Cryptocurrencies have been under pressure this year. Bitcoin, the largest crypto by market value, has tanked 72.5% since January — touching an intraday low of $3,592 a coin on Monday.
And with bitcoin and its rival cryptocurrencies sitting at their lowest price levels in 14 months, using expensive graphics processing units to mine digital currencies is more and more unprofitable, according to RBC. By the firm’s calculation, the break-even point for ethereum — the main currency that can be mined profitably — is about $175 an ether. However, Ethereum has lost 87% value this year and are now near $108.
Chipmakers have warned about the potential for crypto headwinds following the boom and bust in digital currencies.
“Our near-term results reflect excess channel inventory post the crypto-currency boom, which will be corrected,” Nvidia CEO Jensen Huang said in the company’s third-quarter earnings release earlier this month. And in August, management warned that it was expecting “essentially no cryptocurrency” business moving forward. That mirrored rival AMD’s warning in July which said it expects the impact from crypto to fall to nearly zero in the third quarter.
“While Nvidia and AMD have suggested that the crypto currency overhang will be a one quarter issue, we think it is more likely a two quarter issue given new market dynamics,” Steves said.
Steves noted that two factors have added to risks for the excess of mining GPUs for cryptocurrencies. First, since most GPUs are on a two-year warranty, there is likely demand for used GPUs which could cause additional near-term inventory issues. Additionally, more private companies are entering the competition to create higher-quality chips. For example, Bitmain’s new ethereum specific mining chip is far superior to any GPU and is likely the only product running “in the green” at this time, according to Steves.
Despite that, Steves remains bullish on AMD and Nvidia.
“While we are taking a cautious stance on crypto related revenue for yet another quarter, we note that the secular trends for both companies remain unchanged,” Steves said.
“Nvidia’s long-term story (AI, Auto, VR/AR) remains solid, and we think AMD’s new chiplet architecture and 7nm lead will help on the server CPU side.”