Many cryptocurrencies have generated staggering gains in recent years. The price of a single Bitcoin (CRYPT: BTC), the world’s largest cryptocurrency, has gone from just over $ 100 in October 2013 to over $ 54,000 today. Supporters of cryptocurrencies say they are more secure and stable than fiat currencies, which are supported by governments rather than algorithms.
There are many ways to take advantage of this secular trend, including direct investments in cryptocurrencies, exchange-traded funds (ETFs) and companies that own Bitcoin or accept payments in cryptocurrencies.
Image source: Getty Images.
Another way to play the cryptocurrency boom is to invest in chip makers, since cryptocurrencies need to be mined with powerful chips. But Bitmain, which designs most of the ASIC (application-specific integrated circuit) chips used to mine Bitcoin, is still a privately owned Chinese company.
Some investors may end their search with Bitmain, but many other chip makers can still benefit from the crypto mining boom. Let’s take a look at three of these companies: NVIDIA (NASDAQ: NVDA), OMG (NASDAQ: AMD), and Intel (NASDAQ: INTC).
A double-edged sword for NVIDIA
Traditional GPUs can no longer mine Bitcoin effectively for profit, but they can still be used to mine cheaper cryptocurrencies, such as Ethereum (CRYPT: ETH). The use of gaming GPUs to extract these cryptocurrencies has been a double-edged sword for NVIDIA.
NVIDIA’s GPU sales increased by only 9% in fiscal year 2017, which ended in January of the calendar year, but shot up 39% in fiscal year 2018 and jumped another 40% in fiscal year 2019, while cryptocurrencies accumulated their GPUs.
This feverish demand raised GPU prices to NVIDIA’s main PC player market. When cryptocurrency prices subsequently declined, many miners abandoned their used cards – which strangled sales of NVIDIA’s newest GPUs.
As a result, NVIDIA’s GPU sales fell 7% in fiscal year 2020 before recovering in fiscal year 2021. To avoid another bubble, NVIDIA recently announced that it would intentionally cut the “hash rate”, which measures efficiency of a chip in cryptocurrency mining, in half for its newest cutting-edge GPUs. However, a group of Chinese hackers recently crossed those limits to mine Ethereum at a full hash rate.
This news is worrisome, but NVIDIA recently unveiled a new line of CMP (cryptocurrency mining processor) products for miners. These products – which are optimized for mining, consume less power and have no external video ports – can help NVIDIA proactively burst the next bubble in its gaming business while benefiting from the secular expansion of the crypto mining market.
An interesting opportunity for AMD’s newest businesses
NVIDIA’s main rival, OMG (NASDAQ: AMD), also had difficulties during the previous cryptocurrency bubble. AMD has not yet followed NVIDIA’s lead by reducing hash rates or launching dedicated chips for cryptocurrency mining. However, the latest rumors suggest that AMD could launch a cryptographic-only Navi GPU in the near future to avoid another crypto-induced race on gaming GPUs.
Image source: Getty Images.
However, AMD’s future in cryptocurrency mining may depend more on its next acquisition of Xilinx (NASDAQ: XLNX), the world’s largest manufacturer of field-programmable gate arrays (FPGAs), rather than its GPU business. FPGAs can be reprogrammed for a multitude of purposes, including cryptocurrency mining, and the chips already power dedicated mining systems.
FPGAs are not as efficient at mining tasks as ASICs, but they are more efficient than GPUs for mining popular cryptocurrencies like Ethereum if they are paired with HBM (high bandwidth memory) chips.
AMD already expects its acquisition of Xilinx, which is expected to close in late 2021, to expand its presence in the data center market and to be “immediately cumulative” in its margins, cash flows and earnings per share. Adding FPGA-based cryptocurrency mining systems to that list would be a nice bonus that could increase your revenue and diversify your core business away from discrete x86 CPUs and GPUs.
But don’t forget Intel
AMD’s acquisition of Xilinx directly reflects the purchase of Altera by Intel, Xilinx’s biggest rival in the FPGA market, in late 2015. Intel currently sells Altera chips through its programmable solutions group (PSG) , which generated just 2% of its revenue last year.
However, the growing interest in mining systems with FPGA as alternatives to ASIC systems may increase Intel’s PSG revenue in the coming years. Intel didn’t say much about cryptocurrencies, but quietly filed a patent for a SoC (chip system) optimized for crypto-mining tasks in 2019. The SoC project could power mining systems running on GPUs, ASICs and FPGAs.
Intel is currently struggling with many challenges, including development and production challenges for its latest CPUs, loss of market share for AMD in the PC market and a change in CEO. However, investors should not ignore Intel’s recovery efforts, its dominance of the data center market and the growth potential of its PSG segment amid the cryptocurrency mining boom.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Questioning an investment thesis – even our own – helps all of us to think critically about investing and making decisions that help us become smarter, happier and wealthier.