AMD: Custom Mining GPU

Summary

• The problem of demand will result in a fork in GPUs. Gaming GPUs and specific GPUs for mining are on the way.
• It is time for a new mid-range GPU from AMD (but we won't get it).
• Mini-hype is on the way.

Dedicated Mining Card

While not concrete, AMD (NASDAQ:AMD) has hinted that it will make a custom mining solution be it hardware or software. Per Anandtech.com: "In our recent interview with AMD’s CEO, when asked if the GPU market will at some point have to bifurcate between gaming-focused and compute-focused designs, Dr. Lisa Su stated that:

It must be the case."

It sounds logical. Currently, it is nearly impossible to buy an Nvidia (NVDA) or AMD GPU at anything approaching a reasonable price. AMD could take the path of custom hardware to approach the problem. Alternatively, AMD could take the software road and introduce a mining-specific card in which the drivers do not support gaming, but rather offer optimizations for mining - thus taking pressure off gaming GPUs. Nvidia won't sit idle and refrain from marketing a custom card for these specific markets. Whoever takes the lead stands to greatly profit.

Intro

AMD's CPU division is doing extremely well with the successful launch of Ryzen as reviewers gush over Ryzen APUs. However, one commentator posted in my last article's comment section:

I think that the crypto currency mining market will collapse soon and the market will be flooded with used mining graphic cards. AMD's graphic card revenue will collapse. In the long term, AMD might or might not work out, but I think in the short term it is going to seriously suffer."

Fair enough. About once a week my buddy and I go back and forth in a friendly debate over crypto. I stand in the corner and call it a tulip mania, followed by the disclaimer that some currencies will obviously flourish, but many will fail. This is not to say that prices cannot fluctuate all over the place (with the end game being government regulation and oversight).

My friend stands in the other corner (100% out of the stock market), taking the position that crypto will replace the current petrodollar. This is the same petrodollar that we fight wars to keep as the world's reserve currency... but I digress.

Crypto Insanity

I think that crypto is going to be around for some time yet, but will it be at the current valuation? Who knows? I'm not placing wagers on it directly - but that's OK. I'll let people more risk-prone travel those waters (i.e., the crypto-mining masses buying up all GPUs on planet earth).

New Cards

AMD's ancient Polaris line of GPUs is getting very long in the tooth. The 400x GPU line came out in June of 2016, followed by the slightly-tweaked 500x Polaris line the following summer. Yet, the underlying technology is based on 14 nm technology. It is high time AMD announces a mid-range successor to Polaris. A 12nm update might be enough to tide people over till 7nm Vega hits. This would concurrently render old 400 / 500x series cards obsolete and mitigate GPU flooding of the market if crypto were to crash. This could reduce the used-GPU flood risk (at least in the short term) until sales of the latest generation saturate the market. Yet... no 12nm GPU is on the official roadmap. All one can hope for is a refresh of Vega at 7nm (which is some time out at best) or pray that AMD sees the light and produces a stop-gap Vega refresh. Given the performance of Vega, would it be worth the cost?

Mini-Hype

A Ryzen CPU refresh is due to come out in April which will take Ryzen from the 14nm process to 12nm. While widely known, not everyone realizes this and with positive reviews it may bring in some mini-hype to the stock. With this, we expect some positive energy and minor upward movement in share price.

Our Options Play

Due to the buyout speculation, we have sold late March covered calls at a $13.50 strike for .53 a contract. While the buyout rumors "may pan out or may not" this gives us a nice yield for a short amount of time. The only "danger" is the stock leaps up during this time frame and we lose potential money. It is entirely possible this might occur or that AMD's partner will announce the mystery semi-custom chip that AMD has talked about for years. These are risks we are more than willing to take given the yield. Mimic at your own risk.

Analyst’s Disclosure: I am/we are long AMD, NVDA. 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.