Since the beginning of June, shares of AMD have gained 23.5%, while Nvidia has risen almost 14%, on the back of a surge in demand for GPUs used to mine an alternative cryptocurrency called Ethereum (the units are known as Ether). A wave of bullish reports have come out since then saying that the boost in cryptocurrency mining demand could help Nvidia and AMD rise above a seasonally weaker fiscal second quarter, among other benefits.
But thanks to a steep drop in the prices of cryptocurrencies, the benefits may already be priced into the current quarter, with little left to gain thereafter, according to analysts. Nvidia's stock was up 0.1% to $164.44 on Tuesday, while AMD shares fell 3.9% to $13.27.
Some analysts are beginning to question the sustainability of the cryptocurrency mining boom. In a note to clients on Tuesday, BMO Capital Markets analyst Ambrish Srivastava wrote that he's "not at all bullish" on the sudden surge in demand for GPU cards from cryptocurrency mining. Additionally, Barclays analyst Blayne Curtis downgraded AMD's stock to Underweight from Equal Weight, saying he's"unconvinced" AMD will generate enough revenue to support its lofty valuation.
"Bottom line, we are not at all bullish on the sudden surge on demand for GPU cards from cryptocurrency mining," Srivastava said. "We see a fair bit of similarities to what happened in 2013/2014, which was a more than one-quarter bust for AMD, after the boom in cryptocurrency mining."
Srivastava was referring to 2013 when a steep run-up in Bitcoin prices led to a shortage of AMD GPUs, only for bitcoin to shed 80% of its value in just 13 months.
The price of Ether exploded last month, hitting an all-time high of more than $400 on June 12. Since then, it has crashed 65% to a low of roughly $130 on Sunday, before rebounding 24% higher to $170 on Monday.
AMD and Nvidia are tied to Ether because they manufacture the graphics processors used to mine the cryptocurrency. The chip giants aren't connected to Ether's more popular crypto cousin, Bitcoin, however. That's because the algorithm for mining Bitcoins has become too complicated for desktop graphics chips, causing miners to switch to custom designed ASICs (application-specific integrated circuit) chips that are powerful enough to run the mining programs.