Five companies that have been associated with cryptocurrencies are AMD, NVIDIA, Overstock, Square and TSMC. AMD, NVIDIA and TSMC provide hardware to mine the digital currencies while Overstock and Square accept them for payment.
Their finances and stock prices have been helped to varying degrees. If Bitcoin, Ethereum and other cryptocurrencies continue to do well these company’s shares should also benefit. However, if the cryptocurrencies prices falter, and especially if they experience significant downturns, these company’s shares could take a hit. (Note for this article I’ve abbreviated cryptocurrencies as CCs).
A technology shift could hurt AMD and NVIDIA
AMD’s and NVIDIA’s GPUs, or Graphics Processing Units, are specialized graphics cards used to mine CCs. Both companies have benefited from the explosion in Ethereum’s price. Mining farms around the world have popped up to take advantage of the difference between the cost to create the digital currency and its market price.
Christopher Rolland at Susquehanna Financial Group estimates that AMD and NVIDIA generated over $500 million in GPU revenue in the December quarter from Ethereum based sales. He also believes that the two companies could have sold more than $200 million in just the first few weeks of this year.
However, he and Joseph Moore at Morgan Stanley have longer-term concerns about the sustainability of these sales. Rolland is worried that gamers are buying higher-priced cards to mine the CC, and if Ethereum’s profitability declines future GPU sales will be for lower-priced cards. This would impact year over year comparisons and hurt the stock.
Moore believes that Ethereum could eliminate GPU based mining in the next 12-18 months by changing to a new technology solution. He also points out that Bitcoin transitioned from GPUs to specialty ASIC, or Application-Specific Integrated Circuit, chips a few years ago. While Bitcoin is still linked in articles with GPUs, is it not driving demand for them.
Overstock has been accepting payment in Bitcoins since 2014
Overstock was an early adopter of CCs, starting in 2014, by accepting payment in Bitcoin. Early on it kept 10% of the Bitcoins it received and sold off the rest. It changed to keeping half of them last summer, which was very good timing since Bitcoin’s price skyrocketed.
As you can see in the chart below Overstock’s shares have increased about 400% from August last year. While it doesn’t exactly mirror Bitcoin’s move over the same timeframe, up 300%, they are pretty closely correlated. Overstock’s shares should have a high probability of falling dramatically if Bitcoin’s price implodes.
Square announced a Bitcoin experiment
Square allowed its merchant customers to accept Bitcoin starting in 2014, so it has been involved with CCs for over three years. It announced on November 15 last year that it would experiment allowing some users to purchase Bitcoin.
Over the next nine days its stock increased 20% while the NASDAQ rose 3%. Square’s shares have pulled back and now are up 5% vs. the NASDAQ’s up 9%. It wouldn’t be too surprising that Square’s shares have underperformed due to Bitcoin’s volatility or the realization that Bitcoin wouldn’t be a main driver of Square’s financial performance. Or it could be other factors drove the company’s shares lower.
TSMC seeing a strong uptick in cryptocurrency mining
TSMC’s, or Taiwan Semiconductor Manufacturing Company, stock hit an all-time high on Friday after it announced its December quarter results. Its press release included “Our fourth quarter business was supported by major mobile product launches and continuing demand for cryptocurrency mining,” said Lora Ho, SVP and Chief Financial Officer of TSMC. “Moving into first quarter 2018, we expect the strong demand for cryptocurrency mining will continue while mobile product seasonality will dampen our business in this quarter.”
A Bitcoin.com article reported that some sell-side analysts are expecting Bitcoin mining hardware to be up to 10% of TSMC’s revenue. For a company that is forecast to generate $36 billion during 2018 that would be a substantial amount given that it was much lower, if almost non-existent, a few years ago. This is positive for TSMC in 2018, but the sustainability is questionable if the CC hype softens.
Other companies that have been associated with Bitcoin and CCs are IBM, which has created partnerships to work on Blockchain solutions; Kodak, which is creating its own CC; Long Island Ice Tea, which changed its name to Long Blockchain Corp and Seagate, which owns about 2%-3% of Ripple’s XRP CC.