Ethereum Mining Competition Turns Susquehanna Bearish On AMD

Advanced Micro Devices, Inc. (NASDAQ: AMD) stock has slumped 15.2 percent in the past month, and one analyst said investors should think twice before buying the dip.

The Analyst

Susquehanna analyst Christopher Rolland downgraded AMD from Neutral to Negative and lowered the price target from $13 to $7.50.

Rolland reiterated a Neutral rating on NVIDIA Corporation (NASDAQ: NVDA) and reduced his price target from $215 to $200.

The Thesis

Bitmain has developed an application-specific integrated circuit chip for mining Ethereum, putting as much as 20 percent of AMD’s total revenue and 10 percent of Nvidia’s total revenue at risk, Rolland said in a Monday note.

The downgrade is more likely early than late, Rolland said, but the longer-term risk outweighs the potential for a huge Q1 earnings report. The Bitmain product is expected to launch sometime in the second quarter; Rolland said he knows of at least three other companies with similar products in development.

“Using our framework for sizing Ethereum-related GPU sales, we believe that AMD could see up to a $500-million revenue contribution from Ethereum in the first quarter, which should help the company beat [first-quarter] earnings expectations,” the analyst said. 

The prolonged drop in Ethereum prices — the cryptocurrency was trading at $477 Monday after peaking at $1,385 earlier this year — as well as additional Chinese companies bringing ASICs to market, a potential transition from proof-of-work mining to proof-of-stake mining and the possibility that the secondary GPU could cannibalize future GPU sales makes AMD a risky bet even at its lower recent prices, Rolland said. 

Price Action

Following the downgrade, AMD stock traded was down 3.48 percent late in Monday's trading session. Nvidia was trading up 4.12 percent at the time of publication. 

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