According to Joseph Moore, a chip analyst at Morgan Stanley, the graphics chips market will decline next year due to the falling profitability in crypto currency mining and this is likely to impact Advanced Micro Devices, Inc. (NASDAQ:AMD) since it sells these chips. Profitability is falling in line with reducing payoffs in the mining of crypto currencies since the block rewards decrease over time while complexity increases.
"But each month, the 10% increase in difficulty will cut profits by 20% or so. With 10% increase in complexity per month (which would be deceleration from recent complexity levels, as we assume that mining decelerates in 4q given eroding economics," wrote Moore.
Mining Activity
Moore further added that bitcoin is no longer relevant to vendors of graphics chips since the crypto currency moved to integrated circuit chips that are application-specific a couple of years ago. This means that most of the crypto currency mining efforts using graphics are currently being carried out in mining Ethereum, a bitcoin rival.
However per Moore, AMD has more to lose than rival NVIDIA Corporation (NASDAQ:NVDA) in the event that crypto currencies enter a downturn. Moreover while the exposure of Nvidia to the market for crypto currencies is clearly defined, that of AMD is not. With regards to mining Ethereum, Moore pointed out that mining activity has fallen by 80% in the last four months. To make matters worse there will be a shift to the Casper hard-fork technology and this will make the current hardware used in mining Ethereum obsolete. Thus AMD could be negatively impacted unless there is increased demand in other crypto currencies.
Partnership with Intel
Moore’s projections come a little over a week since AMD agreed to team up with Intel Corporation (NASDAQ:INTC) in order to develop a chip for laptop computers that uses its graphics unit and Intel’s processor. While designed for thin and portable laptops the chip will still possess enough power necessary or gaming. This is the first partnership between the two companies since the 1980s and the chip will be part of Intel Core’s 8th generation line.
On Tuesday shares of Advanced Micro Devices edged up by 0.27% to close the day at $11.12.
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