AMD Crypto Currency Sales Will Be Impressive

| About: Advanced Micro (AMD)

Summary

Investors have regarded AMD's crypto currency related revenue as a temporary benefit. This view is, in my opinion, inaccurate.

The CFO agrees that the crypto currency dynamics have changed a lot in recent years. Most notably, crypto currency is less volatile.

Considering the above, the CFO has expressed the wish to target crypto currency related GPU demand from commercial miners.

AMD will continue to benefit from the crypto currency industry as it is here to stay.

Thesis

Crypto currency is here to stay and AMD’s (AMD) management seems to have realized this. As such, they’re now attempting to focus on servicing crypto currency related GPU demand while still keeping in mind that their gaming market is core. This additional source of revenue will provide a much welcome boost to financials as the company continues to battle it out with Intel (NASDAQ:INTC).

Introduction

Many considered AMD’s recent crypto currency boost to be somewhat of an odd event in the sense that the additional revenue is not sustainable. The argument used is that the crypto currency craze will simply fizzle out just like a couple of years earlier. As such, investors should ignore it. AMD’s CFO, Devinder Kumar, begs to differ and presents compelling arguments as to why crypto currency, and its benefits to AMD, are here to stay.

Accordingly, AMD wants to dedicate more resources to servicing GPU demand related to crypto currency mining. There’s one caveat, AMD is focusing on the commercial side of crypto currency mining or the “big boys” if you will.


AMD management’s view on crypto currency

A very interesting question to ask regarding AMD is how the crypto currency boom is going to affect the company and its strategy. Devinder Kumar, CFO, answered this question when he spoke at the Deutsche Bank technology conference recently. When asked how the CFO views the crypto currency market he responded:

“From our standpoint AMD's view is, we take advantage as the opportunity presented itself. In Q2 there was a little bit of an impact positively to the revenue and Q3 the impact is definitely larger. But our view is to be conservative in that space. Our core strategy is to focus on the gaming market at its core and that's where we prioritize the supply that we have.

There is no doubt right now supply is not enough to meet all the demand but from our standpoint, we want to go ahead and prioritize the gaming market. It is not in our view you know at least from a conservative standpoint a large growth driver.”

So management is really prioritizing the gaming market. However, this does not mean that management is completely ignoring the crypto currency mining. Why wouldn’t they? It is a low-hanging fruit to pick in terms of revenue growth. Unless you believe that we’ll see a crypto currency bust like a couple of years ago. The CFO doesn’t believe that to be the case.

In the same conference, the CFO explained why the current mining boom is much more different and sustainable than the previous mining boom that boosted the company’s revenue:

Crypto currency is an interesting area. The first thing to note is, there is a lot of comparisons happening between the crypto currency this go around and a couple of years ago.

I think the single biggest difference this time is, there is a lot of commercial minors out there that can move between the currencies that are out there as the prices fluctuate, as opposed to 2015 where it was weighted more towards the consumer side of it and consumer side of it is more volatile which happened in 2015.”

Even though the crypto currency market is still far from mature, I happen to agree with the CFO that the crypto currency market is currently much more sophisticated than it was a few years ago. It is much more of a commercial market whereas a few years ago it was more of a tech aficionado segment. That is to say, most non-tech regular folks didn’t care too much about bitcoin.

Nowadays, everyone knows what a bitcoin is. Not to say that everyone understands what a bitcoin is but my point should be clear. The commercialization of the crypto currency market has given it a lot more stability and even credibility.

The CFO went on to state:

“We will watch the development, we are selling the GPUs to our customers and people are buying it. It is hard to sometimes figure out exactly where the product is going but commercial mining if you were to put that segment in two parts, is our priority and that's where you have a less of a volatile impact as crypto currency evolves.”

The CFO is clearly expressing a desire to target professional miners rather than the retailer who mines the occasional crypto currency in his basement. This makes sense as professional miners need a lot more hardware.


Possible GPU flood?

However, some might argue that also servicing professional cryptoc urrency miners poses a key risk. If crypto currency, for whatever reason, witnesses a significant downturn, miners might resort to selling their GPUs. This would also affect the gaming market as it would be flooded with GPUs with disastrous consequences for AMD’s gaming revenue.

This risk seems to be overstated as AMD sells specific sets that are used for mining. According to the CFO, these products can’t be reused for the gaming side because certain features have been disabled.

Conclusion

While AMD’s management maintains somewhat of a conservative approach regarding crypto currency related GPU demand, the company is certainly noticing the developments and plans to up its efforts regarding the commercial side of crypto currency mining.

The argument is that this is a much more stable market than it was a few years ago and it is definitely much more stable than the retail market. I agree. This added boost to revenue is both extremely welcome as well as easy to execute, at least in relative terms.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

About this article:

Expand
Author payment: $35 + $0.01/page view. Authors of PRO articles receive a minimum guaranteed payment of $150-500.
Tagged: , , , Semiconductor - Broad Line
Want to share your opinion on this article? Add a comment.
Disagree with this article? .
To report a factual error in this article, click here