Chip Makers Are Cashing In on Digital Currencies, for Now Spike in GPU chip demand for cryptocurrency mining unlikely to last

By Dan Gallagher
June 29, 2017 5:30 a.m. ET
1 COMMENTS
It’s good to be in the graphics chip business these days. Sometimes too good.

Graphics processors, otherwise known as GPUs, have long been the mainstay of personal computers tricked out for gaming. They are also now key components in the artificial intelligence systems being built into state-of-the-art data centers and self-driving cars. That has been driving up the stock prices of the two largest companies in the business— Nvidia and Advanced Micro Devices .

But some business also comes from less-than-stable corners. Graphics chips are also useful for a task called cryptocurrency mining. So-called “miners” are computers that match and update transactions for currencies such as bitcoin and the newly popular format called ethereum. A miner can earn rewards for that activity depending on the number of transactions processed and the value of the currency. Ethereum has proven to be the hottest money of late; its value surged from about $8 in January to just under $400 earlier this month.

That has led to a spike in demand, as GPUs are particularly well suited for ethereum mining. Mitch Steves of RBC Capital estimates that about $100 million worth of GPU processors were added to the networks that mine Ethereum in just 11 days in early June. This has resulted in a shortage of GPU inventory, though neither Nvidia or AMD specifically market their products for this use.

AMD in particular could use all the sales it can get. Its stock price has jumped more than 20% in just the last month, based on a mix of enthusiasm about digital currency mining as well as the launch of a new server chip that will challenge Intel in a key market. Sharp gains over the last year, based on enthusiasm for several new chips, have driven AMD to about 95 times forward earnings—a rich valuation to live up to.

But while the recent rush of GPU sales will likely help both Nvidia and AMD in their next quarterly reports, investors should still be wary. The cryptocurrency markets have long been prone to wild swings—ethereum is now about 23% off its peak from two weeks ago, according to CoinDesk. And recall that a spike in GPU demand for bitcoin mining in 2013 also proved to be short-lived. There are a lot of good reasons to be positive on the market for GPU chips. Banking on cryptocurrency speculators isn’t one of them.

Write to Dan Gallagher at dan.gallagher@wsj.com

Comments: Apparently, the powers that be don't see the digital currencies as the elephant in the room. According to this article, its the GPU chip that's the wind beneath the wings of Novidia and AMD. The crypto currency is too much of a wild card having wilder swings in valuation. After all, in their minds the crypto-currency its just an experiment yet to breath life into Frankenstein. Only the existing powers can create world currencies. Hmmm!