I’m straight up going to tell you that I’m not going to say one thing about cryptocurrencies that you do not already know, if you’re into that kind of thing.
Not that there is anything wrong with that.
Plus I’m not going to talk about the dubious stocks that have jumped on the blockchain and crypto bandwagon.
I’d probably just gripe about how the restaurant group that owns Hooters saw a 50% share price bump by partnering with another company to move its customer rewards points onto a pointless blockchain system.
I’m unconvinced that any new business will be drummed up. The same people will keep going to Hooters “for the wings.”
What I do want to talk about is the tech behind the cryptocurrencies. The actual, physical hardware that gets sold and drives revenues and profits, regardless of price swings, the HODL vs. bubble debates, or anything else.
It is the equivalent of buying Caterpillar stock when the mining and commodities sector is booming. And in that regard, this is a golden age for hardware manufacturers that sell what crypto miners need.
So what really stands out as the cryptocurrency stock to watch in 2018? Let’s dive in and take a look.
Cryptos and Graphics Cards
While cryptocurrencies and tokens like Bitcoin and Ether went nuts last year, the companies that make the actual hardware that makes “mining” them possible are facing a new problem. They simply can’t keep their products in stock.
Graphics cards that run on GPUs are being rationed and prices are soaring. Mid- and high-range graphics cards have always been a bit of a niche market, with PC gamers forking out the big bucks for the latest and greatest.
Meanwhile, most people just want something that can stream video at a decent resolution. That made high-end GPUs a prestige market, while a lot of revenues came from low-margin chips for everyday stuff like laptops and phones.
However, crypto miners have discovered that the GPU processors on these off-the-shelf cards are ideal for number crunching, and they’re buying everything they can get.
For example, the Nvidia GeForce GTX 1070’s suggested retail price is $380. Last year it was selling for $450. Now it is going for more than $700.
This has steadily trickled down to older and lower-quality cards, which are now all but sold out.
Manufacturers and retailers almost universally say they support rationing to prioritize gamers over miners, but that just makes sense. If you are going to sell everything, why alienate your long-time core customers?
The two big names in the market, AMD (NASDAQ: AMD) and Nvidia (NASDAQ: NVDA), are keeping quiet ahead of earnings season, but they face a potential windfall if they can scale up production.
That is a big if. The capital expenditures required to boost production are immense.
So Who Will Come Out On Top?
AMD and Nvidia corporation are the two major companies in a good position to see their financial statements drive share prices through the roof when it comes to GPUs.
Last year, AMD was on a roll in the GPU market. It clawed back a big chunk of its old market share from Nvidia and had a new line of GPUs coming to market.
AMD lucked out in one way. The new GPU line failed to impress. However, miners are buying anything they can.
Unfortunately, digging into market share numbers reveals a critical problem in any race to scale up GPU production.
When AMD clawed back a big chunk of market share, Nvidia dropped from 78.3% of market share at the end of 2015 to 70.5% at the end of 2016, and slid back up to 72.8% at the end of the third quarter.
AMD simply is not operating on the same scale. Assuming AMD accounted for the remaining 17.2% of the market, what represents a 100% increase in production and sales for it is just 23.6% for Nvidia.
Then there are the financials. Nvidia is over 10 times the size of AMD in market capitalization at $148.5 billion vs. $12.6 billion.
All the other relevant figures just keep getting worse. AMD has a Total Cash figure of $879 million with $1.43 billion of debt. Nvidia is at $6.32 billion in Total Cash and $2 billion in debt.
While Nvidia is awfully pricey with a P/E ratio of 61.25, it has a 28.76% profit margin. AMD has no P/E because of its -1.39% profit margin.
Nvidia Stands Alone
A couple other details stand out in this new round of the ongoing AMD vs. Nvidia war.
AMD already has a big deal with Intel to integrate its GPUs in laptops. It has committed its limited capital to a different, lower-end market.
That may affect Nvidia sales and market share in one area. The AMD GPUs will integrate well with
and negate the need for any additional Nvidia hardware to boost performance.
Nvidia isn’t ceding that market though. It has a design that allows manufacturers to create thinner laptops, and consumer preference may lean in that direction.
Data center hardware is Nvidia’s second largest market platform by revenue behind gaming, and that saw a 109% year-over-year and 20% quarter-over-quarter jump in the third quarter.
Plus Nvidia has a super high-end Titan V line of GPU cards coming to the market that retail for up to $3,000. Your average consumer can’t buy that to play games, but crypto miners will buy each and every one Nvidia makes.
Nvidia is reporting its fourth quarter 2017 figures on February 8th. That should start to show what the company is doing to capitalize on the windfall its market is practically handing it on a silver platter.
Keep an eye on it then, and throughout the year. It went on a tear last year, gaining about 120%. That may give some pause, but it is not showing signs of overextending itself or any slowdown in growth.
If you want to get in on some of the cryptocurrency hype while investing in, you know, a real and viable company, Nvidia Corp. is your best bet this year.
