AMD and Nvidia Feel the Heat From Chinese Crypto-Mining Firm

(Bloomberg) -- Advanced Micro Devices Inc. and Nvidia Corp. are feeling the heat from a Chinese adversary that they never imagined would become a competitor.

The chipmakers, which have seen a sales boost as cryptocurrency miners bought up their graphics processing units to solve complex calculations in an attempt to win digital tokens, now face a threat from Bitmain Technologies Ltd. The Beijing-based hardware maker just began sales of a more powerful new product for Ethereum mining.

The firm confirmed on its website Tuesday that it's selling the Antminer E3, and analysts say the so-called application-specific integrated circuit miner, or ASIC, could dent revenue at AMD and Nvidia.

The product won't ship until July, but can be ordered now for $800. By comparison, five GPUs would cost around $1,600 and would result in about the same level of power as the Antminer E3, RBC Capital Markets analyst Mitch Steves wrote in a note to clients Tuesday.

“The product is notably more powerful than current GPUs,” said Steves, who has a buy recommendation on Nvidia stock and doesn't cover AMD. “We view this as a negative for the crypto currency market as it relates to GPU sales.”

The Antminer E3, along with declining Ether prices and a shift in the way cryptocurrency transactions are validated, puts a substantial portion of the chipmakers' sales at risk, Susquehanna Financial Group's Christopher Rolland, who has a sell rating on AMD and a hold rating on Nvidia, said in a report to clients Wednesday.

More than 25 percent of AMD's first-quarter sales this year were tied to crypto mining, Rolland estimated. Nvidia said in February that while it's tough to quantify cryptocurrency's contribution to the business, it was likely higher in the fourth quarter than the prior period.

“Revenue associated with Blockchain was approximately mid-single digit percentage of revenue for AMD in 2017,” AMD spokesman Drew Prairie said in a statement. “We believe that GPUs will continue to provide value to blockchain applications for the foreseeable future. However, the largest long-term growth drivers for AMD are across our datacenter, PC, and gaming businesses and our Q1-2018 and full year 2018 guidance reflects that.”

A spokesperson for Nvidia didn't immediately have a comment on the matter.

Bitmain's announcement didn't come as a big surprise to many crypto enthusiasts, who have been speculating since at least February that the company was preparing to release a new device for mining cryptocurrencies.

AMD was little changed at $9.55 while Nvidia slumped 2 percent to $220.95 as of 1:55 p.m. in New York. The tech-heavy Nasdaq 100 Stock Index was down 0.3 percent.

Evercore ISI's C.J. Muse recommended that investors take advantage of the drop in Nvidia shares, which the analyst has a buy rating on.

“The current sell-off in NVDA thus seems overdone and offers a tremendous buying opportunity,” Muse wrote in a report Wednesday, noting that crypto likely represents about 5 percent of the firm's overall revenue. “Quite frankly, cryptocurrency has been a giant distraction to NVDA's longer-term story.”

To contact the reporter on this story: Lily Katz in New York at lkatz31@bloomberg.net.

To contact the editors responsible for this story: Arie Shapira at ashapira3@bloomberg.net, Brendan Walsh, Randall Jensen

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