Did you know that shares of Advanced Micro Devices (AMD) and, to some extent, shares of Nvidia (NVDA) are connected to a more volatile underlying asset? That's right, these two popular stocks are being partly influenced by cryptocurrencies like Ether and Bitcoin (BTC) , just to name a few.
This should come as little surprise, really. In late-June, we pointed out the correlation between cryptocurrency prices and stocks like AMD and Nvidia. Why's it there? The correlation exists because high-powered graphics cards from companies like AMD and NVDA are in hot demand, thanks to more and more people looking to "mine" these currencies.
The argument, from a stock perspective, is that as prices for these currencies rise or fall, so too will demand. More demand for Bitcoin equals more mining, which means more orders for AMD and Nvidia. Less demand, of course, equals less orders. Whether that really makes sense doesn't matter; that's how the market is reacting.
AMD seems to be on the more reactive end toward cryptocurrency price movements. That can probably be explained by its $13.5 billion market vs. Nvidia's market cap of $100 billion. Additionally, Nvidia has pretty notable businesses outside of graphic cards. There's datacenter, cloud, artificial intelligence and self-driving cars among a few others.
In fact, TheStreet's founder Jim Cramer, who also manages the Action Alerts PLUS charitable trust portfolio, pointed out the reasons for investors to buy these stocks besides Bitcoin.
Last week was a perfect example. On Thursday, shares of AMD opened higher on the day. But shortly after the strong open, shares fell more than 6% from its session highs and closed deep in the red. Why? One could argue that the steep fall in Ether prices were to blame. AMD's tumble also dragged down Nvidia on Thursday.
While the stocks do not trade in lock-step with the cryptocurrency market, there's certainly a correlation that investors should be aware of. If AMD or Nvidia are tanking on no apparent news, look to see what Bitcoin and Ethereum are doing on the day. If investors are considering a short-term position in either stock, it may be wise to keep an eye on Bitcoin or Ethereum prices.
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