Many cryptocurrencies have made staggering profits in recent years. The price of a single Bitcoin (CRYPTO: BTC), the world’s leading crypto-currency, rose from just over $ 100 in October 2013 to more than $ 54,000 today. Proponents of cryptocurrencies claim that they are safer and more stable than fiat currencies, supported by governments rather than algorithms.
There are many ways to bring about this secular trend, including direct investments in cryptocurrencies, exchange traded funds (ETFs) and companies that own Bitcoin or accept cryptocurrency payments.
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Another way to play the cryptocurrency is to invest in chip makers, as cryptocurrencies need to be exploited with powerful chips. But Bitmain, which designs most of the ASIC (application-specific integrated circuits) chips used for Bitcoin mining, is still a private Chinese company.
Some investors may end their search with Bitmain, but many other chipmakers may still benefit from crypto-mining. Let’s take a closer look at three of the businesses: NVIDIA (NASDAQ: NVDA), AMD (NASDAQ: AMD), en Intel (NASDAQ: INTC).
A double-edged sword for NVIDIA
Traditional GPUs can no longer effectively run Bitcoin for profit, but it can still be used to exploit cheaper cryptocurrencies Ethereum (CRYPTO: ETH). Using GPUs to exploit those cryptocurrencies was a double-edged sword for NVIDIA.
NVIDIA’s GPU sales increased by 9% in fiscal 2017, which ended in January of the calendar year, but increased by 39% in fiscal 2018 and jumped by another 40% in fiscal 2019 when crypto-miners stockpiled its GPUs.
The feverish demand has increased the prices of GPUs for NVIDIA’s core market for computer gamers. When cryptocurrency prices cooled down afterwards, many miners dumped their used cards – which hampered sales of NVIDIA’s latest GPUs.
As a result, NVIDIA’s GPU sales fell by 7% in fiscal 2020 before recovering in fiscal 2021. To avoid another bubble, NVIDIA recently announced that it will halve the ‘hash rate’, which measures a chip’s efficiency in cryptocurrency mining, for its latest high-end GPUs. However, a group of Chinese hackers recently bypassed the limits of exploiting Ethereum at a full hash rate.
The news is worrying, but NVIDIA recently introduced a new range of CMP (cryptocurrency miner) products for miners. These products – which are optimized for mining, have less power consumption and have no external display ports – can help NVIDIA proactively drop the next bubble in its gambling industry while benefiting from the secular expansion of the crypto-mining market.
An interesting opportunity for AMD’s latest venture
NVIDIA’s biggest competitor, AMD (NASDAQ: AMD), also struggled during the previous cryptocurrency bubble. AMD has not yet followed NVIDIA’s lead by reducing hash rates or launching special chips for cryptocurrency mining. However, the latest rumors suggest that AMD may launch a crypto-only Navi GPU in the near future to prevent another crypto-induced rush on gaming GPUs.
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However, AMD’s future in cryptocurrency mining may depend more on the upcoming acquisition of Xilinx (NASDAQ: XLNX), the largest manufacturer of FPGAs (field-programmable gate arrays) in the world, instead of its GPU business. FPGAs can be reprogrammed for numerous purposes, including cryptocurrency mining, and the chips already have dedicated mining systems running.
FPGAs are not as efficient in mining tasks as ASICs, but they are more efficient than GPUs for mining popular cryptocurrencies like Ethereum when paired with HBM chips (high bandwidth memory).
AMD already expects its acquisition of Xilinx, which is expected to close by the end of 2021, to expand its presence in the data center market and be “immediately attractive” to its margins, cash flow and earnings per share. Adding FPGA-based cryptocurrency mining systems to the list would be a nice bonus that could increase its revenue and diversify its core business, away from x86 CPUs and discrete GPUs.
But do not forget about Intel
AMD’s acquisition of Xilinx directly reflects Intel’s acquisition of Altera, Xilinx’s biggest competitor in the FPGA market, at the end of 2015. Intel is currently selling Altera’s chips through its programmable solution group (PSG), which last year only 2 % of its revenue.
However, the growing interest in FPGA-powered mining systems as alternatives to ASIC-powered systems could increase Intel’s PSG revenue over the next few years. Intel has not yet said much about cryptocurrencies, but has quietly filed a patent for a SoC (system on chip) optimized for cryptocurrencies in 2019. The SoC design can power mining systems running on GPUs, ASICs and FPGAs.
Intel is currently struggling with many challenges, including development and manufacturing challenges for its latest CPUs, losses of market share to AMD in the PC market and a change in the CEO. However, investors should not ignore Intel’s turnaround efforts, its dominance over the data center market and the growth potential of its PSG segment amid the mining boom in cryptocurrencies.
This article represents the opinion of the author, who may not be in agreement with the ‘official’ recommendation position of a Motley Fool premium advisory service. We are furry! When we question an investment thesis – even one of our own – it helps us all to think critically about investing and to make decisions that help us become smarter, happier and richer.