Encrypted mining: Who are the biggest victims of AMD and Nvidia?
At present, AMD is the preferred GPU for mining in Taifang, and the demand is above NVIDIA.
Encryption-related revenues already account for 6%-8% of AMD's overall revenue, which has less impact on NVIDIA's business;
In 2018, AMD's revenue and growth will be affected by the encryption mining business, while Nvidia will not.
Since the beginning of providing equipment for encrypted mining companies, AMD and Nvidia have long been hot topics in the industry. Many people have not seen the two companies actually face the potential risks of encrypted mining.
In this article, I provide two points of view on this issue, hoping to clarify misunderstandings about Bitcoin and Ethereum, the two current largest cryptocurrencies. We believe that AMD is more involved in the field of encryption mining. If the mining demand declines, AMD will suffer greater losses. NVIDIA is a more diversified company with a larger scale and less impact.
AMD's low cost and short payback period make it the preferred GPU for mining in Ethereum, higher than NVIDIA. However, revenue related to encryption has accounted for 6%-8% of AMD's total revenue, which is a considerable amount and will be hindered by AMD's control. The Ethereum “Equity Proofâ€, which is being turned to, has not yet provided industry support to make it a sustainable long-term revenue project for AMD.
Compared with AMD, NVIDIA's business accounted for a smaller proportion, and its diversified business model and larger scale will make it more potential downside than AMD dilution. We remind investors to recognize that encryption-related revenue has become an important component of AMD's revenue, and any collapse of encrypted mining will affect its size and growth rate.
In the past 12 months, Nvidia’s stock has appreciated more than 100%, and AMD has lost 20%. NVIDIA is a diversified company with close to $10 billion in revenue in 2017 and AMD's revenue of $5 billion. NVIDIA's market valuation is about $136 billion, and AMD's market valuation is about $11.5 billion, a difference of ten times. According to a consistent estimate of FactSet, AMD's current price-to-earnings ratio is 1.8 times EV / 18, 29 times 2018 P / E, Nvidia's price-earnings ratio is 11.1 times 2018 EV, 38 times 18 years P / E. Clearly, Nvidia's higher market value is mainly due to its high profit margins and returns.
Encrypted mining has an impact on both companies through the GPU business. Two companies report that revenue from encryption-related businesses was higher than expected, but did not disclose specific financial details.
How do you understand that both companies will be affected by the encrypted mining business? First, analyze the importance of mining.
“Cryptographic currency mining†means that the miner receives a reward for confirming the blockchain system transaction. The mining machine helps confirm each transaction and load it into the blockchain, and in return they receive a small amount of cash. In order to confirm the transaction, the mine owner will use the calculation energy to solve the encryption guarantee transaction and record it on the ledger. This process is called "work proof." The validation process requires a lot of calculations and energy to support this action.
Understand the impact of encrypted mining on AMD and NVIDIA, on the one hand, to understand the difference between coins etched by ASICs and GPUs. For example, the largest cryptocurrency bitcoin is dug by the ASIC, while the second largest Ethereum is mostly dug by the GPU.
ASIC-based coins do not use AMD and NVIDIA's GPUs and have no direct impact on the two companies. However, we recognize that coins are often closely related, so a decline in Bitcoin will mean a similar decline in other currencies.
GPU-based coins require chips from AMD and NVIDIA, and their prices will directly affect the demand and sales of the two companies. The algorithm is used to memorize these currencies and requires a storage array, which is why GPUs are used instead of ASICs in this case.
For AMD and Nvidia, how big is the encryption mining market? Given its size in the GPU market, we use Ethereum to evaluate it. RBC estimates that the total market size of only Ethereum mining is $1.87 billion. Only GPUs account for two-thirds, so Ether Square's GPU market is worth $1.25 billion. Note that these figures only include Ethereum, and once other currencies become profitable regions, the market size will be even larger.
Note that in the analysis, the price of Ethereum will be the deciding factor, because the lower price will affect the profitability of the miners, thus affecting their demand for GPU. Please note that the price of Ethereum at the time of writing has dropped from $1400 to $850. The RBC analysis assumes that the price of Ethereum is 5-8 months when it is 720 dollars, which is a very attractive return for most people. However, if Ethereum prices drop significantly, we expect mining companies to suffer lower returns and a longer return on investment.
AMD has hidden some information about the impact of encrypted mining, regarding their fourth quarter earnings, as follows:
We think this is the median percentage of our full year income. Actually it may be a little higher than this, however, we see that this is a very important market. I mean, we look at the dynamics of the market. But it consumes a lot of GPUs. It's a good part of our business, and we tend to work with big players to make a better business look.
AMD's report shows that 6%-8% of revenue in the fourth quarter is related to the encrypted mining business, which is highly dependent. AMD's revenue for the quarter reached 1.48 billion US dollars, of which mining business revenue reached 100 million US dollars. Nvidia announced its fourth-quarter revenue, and management also acknowledged that encrypted mining revenues were higher than expected and had little impact on the overall business. NVIDIA's gaming division reported revenue from the encryption business, but it is difficult to estimate the retail demand from miners and gamers.
The increase in demand for GPUs has pushed up the price of NVIDIA and AMD products. PC Gamer said that since the launch of the GPU, the average price has soared by 65%. Due to the lower price of AMD's GPUs, the largest increase, resulting in increased income and profits of miners. RBC's estimate shows that AMD's GPU return period is 4.7 months, while NVIDIA's return period is 8 months. The price increase proves that AMD's products are in higher demand.
(PC Gamer Magazine)
Who is the biggest victim?I think the demand for encrypted mining is still in its early stages and it cannot be called a given industry. Some listed companies follow this trend, such as the HIVE blockchain technology, but their stock prices have fallen, and Ethereum has also begun to fall. Digital currency has fluctuated drastically, and any large-scale adoption has not yet appeared.
We also believe that many miners began to purchase mining equipment in early 2017, and the price of mainstream coins rose in a few weeks. However, recent adjustments have caused prices to fall, and I don't think mine owners will buy additional equipment as they did before. Since the price adjustments for Bitcoin and Ethereum took place in the New Year, reports from AMD and NVIDIA will naturally lag behind.
Because of its lower revenue base and non-diversified business models, AMD is at higher risk for encryption mining than NVIDIA. AMD's computing and graphics department report showed quarterly revenue of $958 million, based on which we estimate encryption-related revenues to reach $100 million, or 10% of total revenue. Due to the economic benefits of AMD, it also attracted more demand from miners. Nvidia is clearly the second choice for miners, and it may benefit from AMD's GPU shortage on the market, frankly the GPU market will be short-term supply.
influencesWhat are the prospects for AMD and NVIDIA? We believe investors should pay close attention to changes in GPU-based mining operations, as AMD's recent risk is higher than NVIDIA. There are some risks of encryption driving GPU requirements:
The price of Ethereum and other GPU-based coins may have been falling, which will reduce the willingness of miners to buy because of the decline in profitability;
Any change in block rewards or block time will greatly change the economic benefits of mining Ethereum and other currencies;
Ethereum is changing from “work proof†to “work rightsâ€. This change will lead to the transformation of the algorithm, which will theoretically stifle the market demand of GPU. However, others have speculated that heterogeneity of GPUs and other mining methods may be required.
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