AMD and Nvidia: Giant Quarter on Teens Mining Ether, Says Morgan Stanley - Barron's

Kids in college dorm rooms, and, increasingly, people’s teenage children are pumping up revenue for graphics chips to “mine” the Ether currency, as it skyrockets in value, writes Morgan Stanely analyst Joseph Moore, bringing both windfalls and peril for chip makers Advanced Micro Devices (AMD) and Nvidia (NVDA).

That’s good and bad, writes Moore, as crypto may mask some weaknesses in other parts of their businesses.

In a note today that echoes one by Christopher Rolland of Susquehanna last week, Moore writes that the surge in Ether’s value in Q4, to a high of $1,200, boosted the appeal of GPUs sold by AMD and Nvidia, probably driving sales of the chips up by 50% from Q3’s level, he estimates.

The rise in the price is driving “kids in dorm rooms” to load up on graphics cards, among others, he writes — helped by the fact college kids don’t pay for electricity, improving the payoff for running the math for Ether.

What’s more, "Anecdotally, as analysts who have written about Ethereum mining, we have had multiple requests to help people's teenage children get into Ethereum mining."

Running the numbers, total GPU sales for the two makers were probably a billion dollars in 2017, he thinks:

Based on our estimate of 3q revenues of $225, the difficulty data would imply total 4q graphics sales of $375 mm, a remarkable figure, bringing full year mining revenues to $1bn. 2) We believe that AMD has had leading market share in the space, but the shortage has been more intense, which has driven business to NVIDIA. We estimate a split of ~$600 mm for AMD, and ~$400mm for NVIDIA. Based on an examination of mining rigs both from turnkey vendors and on Ebay, we believe that most of the NVIDIA cards are GeForce cards, not the specialty mining cards that they quantify on the earnings calls.

This is boosting results AMD, big time: is probably $1.55 billion in the December quarter, and $1.43 billion this quarter, which is above the consensus for $1.4 billion and $1.24 billion, respectively. Profit per share might be  9 cents and 8 cents per quarter, versus consensus for 5 cents and 2 cents.

For Nvidia, it may mean revenue of $2.81 billion and $2.55 billion, versus consensus for $2.65 billion and $2.46 billion, and EPS of $1.25 and $1.01, versus $1.15 and 98 cents expected.

For AMD, whose stock he rates Underweight, the payoff now is bigger, but he’s worried about the overall business longer-term, as things such as the company’s server chips have less visibility:

Sequential growth in Ethereum, combined with improvement in pricing across the board, would certainly drive substantial upside to the quarter, even higher than whispers. However, we see this masking some weakness in the uptake of desktop and notebook processors, and certainly shortage in AMD graphics cards is limiting traction in the longer lived gaming business. Our checks in Asia continue to show limited traction for high end client CPUs, and Vega GPUs are simply unavailable. We see console builds down in 4q, and down again next year. The Spectre and Meltdown security exploits have certainly created enthusiasm in both client and server, as the patches have more negative impact on Intel CPUs than AMD, but in a practical sense we don't see it driving business towards AMD. We're do not think that dynamic - very strong cryptocurrency, with middling numbers everywhere else - is enough to keep the stock going short term, but the transparency of those business drivers remains limited.

AMD stock today is up 24 cents, or 2%, at $12.89, while Nvidia shares are up $3.80, or 1.6%, at $237.49.