AMD's stock fell sharply following a Morgan Stanley analysis predicting that demand for cryptocurrency-focused chips would plummet by fifty percent over the next twelve months. Shares dropped nine per
AMD's stock fell sharply following a Morgan Stanley analysis predicting that demand for cryptocurrency-focused chips would plummet by fifty percent over the next twelve months. Shares dropped nine percent in reaction to the report. Earlier in the week, the company had already suffered a thirteen and a half percent decline after releasing disappointing fourth-quarter earnings guidance. The selling continued through October thirtieth, eventually dragging the chipmaker's year-to-date performance into the red, with shares down more than four percent.
Morgan Stanley's Joseph Moore pinpointed the issue in his October thirtieth client advisory: mining operations had artificially boosted graphics card sales throughout 2017. GPU-minable cryptocurrencies like Ethereum had generated enormous demand for high-performance graphics processors from both Nvidia and AMD as miners raced to capitalize on explosive price appreciation. Ethereum itself had climbed nearly thirty-five hundred percent during the year, drawing speculators betting on further gains.
Moore's message grew increasingly skeptical about sustaining this trajectory. He trimmed his AMD price target from eleven dollars to eight dollars—a drop of thirty-two percent from just days earlier. The downgrade accompanied a broader reassessment of the sector's fundamentals.
"[AMD's] fundamental outlook is not quite as robust as microprocessor momentum has been slow to build, offset by cryptocurrency gains," Moore explained. "We believe that AMD's graphics surge has been caused by a sharp increase in sales of graphics chips to cryptocurrency miners. We expect this to meaningfully decelerate next year."
He expanded on his cautious stance further: "We expect cryptocurrency to gradually fade from here, consoles to decline, and graphics to be flattish. To be clear, we admire what the company has accomplished on a fraction of its competitors' budgets in both microprocessors and graphics – our cautious view is based entirely on the current stock price, and the limited potential for upside in 2018 and beyond."
The forecast highlighted growing uncertainty about whether digital currencies' spectacular gains could sustain the hardware spending that had propped up chipmaker valuations throughout 2017.
