AMD's Graphics Cards Are Selling Out for the Wrong Reason

Graphics cards from AMD (NYSE: AMD  ) and NVIDIA (NASDAQ: NVDA  ) are increasingly being used to accelerate computationally intensive calculations, in some cases offering a substantial performance boost compared to CPUs. While scientific simulations have been the main application thus far, the rapid emergence of cryptocurrencies, such as Bitcoin and Litecoin, appear to be driving increased sales of AMD's high-end GPUs. But this demand is likely not sustainable, and lack of availability may push gamers to buy NVIDIA cards instead.

Why do cryptocurrencies need GPUs?
Cryptocurrencies like Bitcoin all work in essentially the same way. A digital coin can only be produced when a computer does a certain amount of work, typically a series of complicated calculations. The result of this calculation can be easily checked to ensure that the work was done, and a digital coin is created and dispensed to the person who ran the calculations. There is a fixed maximum number of digital coins that can exist, and systems like Bitcoin are set up to make it more difficult and time-consuming to create coins as the number of coins increases. We'll gloss over some intricacies here, but this is essentially how cryptocurrencies function.

In the early days of Bitcoin, a simple desktop computer could easily generate coins. But as the difficulty of the calculations rose, GPUs began to be used to greatly speed up the process. Eventually, the cost to power a CPU outweighed the value of the Bitcoins being produced, and GPUs became the norm. As Bitcoins grew in popularity and value, specialized hardware designed specifically to "mine" Bitcoins was created, proving to be far more efficient than GPU solutions. This has greatly reduced the practicality of using GPUs to produce Bitcoins.

However, there are alternative cryptocurrencies that are at the stage where a GPU, or a set of GPUs, can generate substantial profits for the miner. Litecoin, which was created in 2011, has started to gain some mainstream attention as an alternative to Bitcoin, and many who had originally mined Bitcoin have shifted to Litecoin instead. Litecoin is specifically designed to be mined with consumer-grade hardware, and the recent explosion of interest has reportedly created a shortage of certain graphics cards. The design of Litecoin requires substantial amounts of memory, meaning that only high-end graphics cards can be used effectively.

AMD is winning the battle for cryptocurrency mining...
It turns out that graphics hardware from AMD is significantly more efficient at mining cryptocurrencies than hardware from NVIDIA. AMD's most recent high-end cards, the 280X and 290X, are currently almost completely sold out on Newegg, and this is being attributed to miners of Litecoin and other alternative cryptocurrencies snatching them up.

Performance of graphics cards for mining is measured in millions of hashes per second, where a hash is the type of operation needed to be done to create a coin. AMD's highest-end card, the 290X, can do about 990 MH/s, whereas NVIDIA's highest-end card, the GTX Titan, can only do 485 MH/s. This discrepancy has caused those mining cryptocurrencies to overwhelming choose AMD cards over NVIDIA.

...but it's a battle not worth winning
AMD may end up selling more high-end cards than NVIDIA in the near term due to Litecoin mining demand. But if the cryptocurrency gains the kind of acceptance that Bitcoin has achieved, then specialized mining hardware will inevitably make GPUs obsolete for the purpose. That's exactly what happened with Bitcoin, and it's exactly what will happen to any cryptocurrency that goes mainstream.

What this means is that this increased demand is not sustainable for AMD, and any benefits will likely be short-lived. In the long term, the fact that AMD's high-end cards are in short supply may actually be a negative for the company. Since the 280X and 290X are being bought out by Litecoin miners, gamers looking to buy the card may not be able to find available inventory, turning to NVIDIA products instead. So even though AMD will sell more graphics cards in the short term, NVIDIA may eventually gain share of the gaming GPU market.

The bottom line
AMD has struck short-term gold as Litecoin mining takes off, but the success of the cryptocurrency entails the eventual obsoletion of graphics cards as a viable mining method. This demand isn't sustainable, and NVIDIA could pick up share of the gaming market as AMD sells out of its high-end cards. This certainly isn't a reason to invest in AMD. In fact, it may be a reason to avoid it.

Editor's Note: The original version used incorrect performance figures for graphics cards, this version has been corrected.

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  • Report this Comment On December 11, 2013, at 12:33 PM, masterwallstreet wrote:

    In my opinion only, here is the bottom line. You have a product that is selling out crazy. You are saying that it is a reason to not buy the stock. Are you insane? It does not make a difference as to why they are buying the graphic card as long as they are selling like hot cakes and they are in demand. Telling people to not invest in this stock because it is selling out the high products this is the most ridiculous thing I ever heard. Not only are they selling out but the demand is so high that XBox and Playstation are flying off the shelves. The graphic cards are selling out as fast as they can produce them. This is a great investment right now. You will be foolish not to invest in this.

  • Report this Comment On December 11, 2013, at 12:48 PM, chadem311 wrote:

    "Timothy Green owns shares of Nvidia. The Motley Fool recommends Nvidia."

    Ya think?

  • Report this Comment On December 11, 2013, at 12:48 PM, bels wrote:

    You show a deep lack of understanding in cryptocurrency. There is a reason why litecoins are mined with gpus. Bitcoin and Litecoin use two different algorithms to do their work and the litecoin (scrypt) algorithm makes it hard to produce FPGAs or ASICs. Will there be FPGAs and ASICs for litecoin, sure, eventually. But that is a long way off, maybe 3+ years before we'll see an ASIC for litecoin. If you had done any research on this topic past a quick google search then you would understand how uninformed your article is. This is your attempt to throw some good will Nvidia's way because you have a vested interest in them and they are getting slammed in this area. This is coming from someone who has mined bitcoin and litecoins for 2 years.

  • Report this Comment On December 11, 2013, at 12:49 PM, rav55 wrote:

    @Timothy Green

    The fact that you hold nVidia is certainly reason enough to turn a serendipitous AMD success into a failure.

    Sir you are the living definition of a Yellow Journalist.

    .

    Cryptocurrencies are here to stay. Currency “mining” is essential to the security and integrity of the Coin network. Blockchains are created to track ownership of each coin and “Users who devote computing power to maintaining the blockchain this way are called "miners" because they are awarded in bitcoin when they are first to solve such puzzles – mining is how new bitcoins are generated.[18] The mathematical calculations performed by miners' computers serve to verify that each transaction is valid and add the information to the blockchain.[19] As more bitcoins come into circulation, the puzzles involved in mining them become increasingly difficult, and the rewards are halved at regular intervals, until 21 million bitcoins have been created and production stops.[18] As Bitcoin achieves wider recognition and more people compete to mine the coins, competition for the limited number of bitcoins awarded for solving the cryptographic puzzles becomes more steep and more powerful computers are needed in order to compete – a fact which has spawned a technology boom in sales of Bitcoin mining technology.”

    "The Litecoin network aims to process a block every 2.5 minutes, rather than Bitcoin's 10 minutes, which its developers claim allows for faster transaction confirmation.

    Litecoin uses scrypt in its proof-of-work algorithm: a sequential memory-hard function first conceived by Colin Percival. The original intended benefit of using scrypt was to avoid giving advantage to GPU, FPGA and ASIC miners over CPU miners, which occurs in the Bitcoin protocol. However, this turned out to be an incorrect assumption: GPU mining in Litecoin's implementation of scrypt is currently ten times more efficient than CPU mining.[16] FPGA and ASIC implementations are more expensive to create for scrypt than for SHA-256, which is used in the Bitcoin protocol.

    The Litecoin network will produce 84 million litecoins, or four times as many currency units as will be issued by the Bitcoin network."

    The bottom line is akin to Protein Folding or Seti; folks set up computers to run the enormous calculations needed to maintain the security of the Coin network.

    nVidia GPU’s really suck at this while AMD Radeon rock. Intel GPU’s are a joke anyway so they don’t even count.

    Basically this is a new “game”. Enthusiasts build computers to run high end GPU’s to see how much they can earn in cryptocurrency.

    Next time you try to write try doing a little research and get your facts straight.

    This is a huge bust for nVidia. As it shows just how kludge nVidia GPU’s really are.

    So Radeons are flying of the shelves for the RIGHT REASONS. nVidia GPU's suck at this game.

    The quotes are from Wiki.

  • Report this Comment On December 11, 2013, at 1:00 PM, LazyTim wrote:

    I have to agree with masterwallstreet. The idea that they're selling units as fast as they can produce them being a bad thing since they're selling for the "wrong reasons" is a case of over analyzing things.

    The author says it's a "battle not worth winning" but I think a better way to look at it is a "battle not worth fighting" since he's right that the demand in likely to be temporary. But I don't think AMD is doing anything to fight this battle (such as ramping up production in unsustainable ways or diverting production from their commercial customers to retail and thereby forcing commercial customers to turn to NVIDIA). All AMD is doing is making their product and watching it fly off shelves. That can't be a bad thing.

  • Report this Comment On December 11, 2013, at 1:03 PM, rav55 wrote:

    Read this and weep:

    "AMD destroys Nvidia at Bitcoin mining, can the gap ever be bridged?"

    http://www.extremetech.com/computing/153467-amd-destroys-nvi...

    LiteCoin is Causing Shortages of AMD Radeon GPUs

    http://www.brightsideofnews.com/news/2013/12/9/cryptocurrenc...

    Enthusiasts love Radeon because it outperforms nVidia silicon by a factor of about 10x. This is massive.

    This is a huge gain in market share for AMD. When your gaming rig can be left running all night or when you are not gaming to earn money means you need the most efficient mining hardware on the market.

    This is a wakeup call for the HPC and GPGPU crowd. Evidentlly Intel/nVidia has been a bit less than truthfull.

  • Report this Comment On December 11, 2013, at 1:16 PM, rav55 wrote:

    @lazytim

    You don't get it. Protein folding and Seti became a contest of pride between enthusiasts. Bitcoin and Litecon mining is a similar enthusiast past time and I would suspect that close to 500,000 mining machines will be built with AMD silicon.

    The measure of success is in the wallet. Good silicon will earn money for the user. Bad silicon won't. nVidia silicon is less than 3rd rate.

    This also translates into the broader market. It is a win no doubt about it. It's not that Radeon is marginally better than nVidia, no it's that Radeon is MASSIVELY better. Across their entire design portfolio. It is unlikely that ASIC or FPGA silicon will be developed as the mining protocol for litecoin was designed to be expensive to implement on memory deficient ASIC silicon.

    This is an unexpected and completely serendipitous success for AMD.

    Your sour grapes are laughable.

    Just like when nVidia said it gave the console wins to AMD. HAH what a joke.........to date AMD has netted from 2 weeks of console sales about $500 million.

  • Report this Comment On December 11, 2013, at 1:27 PM, KenLuskin wrote:

    Incredibly STUPID conclusion regarding investing in AMD.

    If you want to really look LONG term, AMD's APUs will make Nvidias graphic cards OBSOLETE!

    ALL the new GAMES are being OPTIMIZED for AMD grahics!

    This article is ONLY for FOOLS!

  • Report this Comment On December 11, 2013, at 1:48 PM, LazyTim wrote:

    @rav55

    Hmmm, I was actually agreeing that this is a good thing for AMD.

    Maybe I wasn't clear about that.

    When I said "not worth fighting" all I meant was that, as currently stated, the author's argument is basically:

    more sales = bad thing (which can't be true)

    If he'd been making the case that AMD was responding to this increased demand in economically unsustainable ways, then that's an argument potentially worth having.

    Whether AMD's GPUs will remain the most efficient way to mine these coins or whether this is a temporary trend is not something I know anywhere near enough to comment on. I've heard arguments on both sides.

    Either way, as a temporary trend for AMD it's a good thing and if it turned into a long term thing, well that's even better.

  • Report this Comment On December 11, 2013, at 1:49 PM, mfoolsuksdik wrote:

    What a moron.

    With this argument you can say Apple iPhones sell for all the wrong reasons. You ever try to hold a conversation with someone on an iPhone. You can't understand a word they are saying, they sound so muddled.

    I got two r9 290 last night with BF4 for the mantle patch this weekend. Cryptos is just a bonus side effect. If i can make money with litecoin, that works for me. Cryptocurrencies are going to be huge - they may even save the global economy. ;)

    Keep holding your NVDA, wall street darling stock. That stock is doomed with Mantle coming.

  • Report this Comment On December 11, 2013, at 2:01 PM, smallormidcapman wrote:

    AMD amateur analysis focusing on GPU sales for "the Wrong Reason". Anyone who doesn't discuss semi-custom APUs (game consoles), APUs (Kaveri, Beema, Mullins, etc), dense ARM server wins via SeaMicro IP, and the recent comments made at 2 recent conferences (Credit Suisse & Raymond James) by the CFO and CSO has an agenda.

    AMD has said this recently:

    1. We expect our 35% GPU share to increase to "over 50%" in the coming quarters.

    2. We think we have a shot to get to "25%" of the server market.

    3. Semi-custom APUs in consoles are yeilding better than anticipated with gross margins further improving from the "mid teens" with ASPs from $60-$100 per console.

    4. We will meet our 2013 WSA with GloFo in part because 28nm console chips and 28nm APUs will be made at GloFo.

    Add on Kaveri launch in Q1, Mantle, HSA, and the AMD management teams excellent recent execution and you have a WINNER. Nvidia fanbois can't see the APU forest through the GPU trees...

  • Report this Comment On December 11, 2013, at 3:20 PM, chessplaya wrote:

    reading this prompted me to sign up... how is any reason to buy a product the "wrong" reason ?? Your title heading and what you're alluding is by far the most idiotic thing I've read in a while. So if I'm a customer and decide to buy AMD's 290/290x over the Titan because it's cheaper, is that the wrong reason also ??

    It's a given that NVDA has the better performing HW (by a bit in comparison to the newest stuff AMD put out) for graphic performance, does that mean I can only make a decision to buy a product based on performance ?? I can't take the price/additional benefits into account ?? The bottom line is you should think before you write oh and AMD's products are hot items right now for whatever reason.. which is a good reason...

  • Report this Comment On December 11, 2013, at 8:26 PM, FM5 wrote:

    you should get payed in bitcoin for writing this Article

  • Report this Comment On December 12, 2013, at 5:27 AM, rav55 wrote:

    "The design of Litecoin requires substantial amounts of memory, meaning that only high-end graphics cards can be used effectively."

    Litecoin was designed this way to specifically exclude the economical development of ASIC's and FPGA to do the computational work that can be much more cheaply by consumer grade GPU's. In fact that AMD GPU's are so good at it came as a complete surprise. The intent was for a broad distributed computation using CPU's but nobody anticipated just how good AMD floating integer performance is.

  • Report this Comment On December 12, 2013, at 8:38 AM, bluesky64 wrote:

    Tim,

    Sell your nvda and buy AMD. Analyst have set new price target for AMD Dec 2014 $ 10.75.

  • Report this Comment On December 12, 2013, at 8:57 AM, kjurden wrote:

    INTC and NVDA are losing shares to AMD...It's a fact, and you can tell by all of the BS being put out on the street by Hedge Fund Managers, INTC, & NVDA fanboys. They're scared and don't have an answer! Buy more AMD Today and watch them scramble! Shorts are going to LOOSE their Shorts!

  • Report this Comment On December 12, 2013, at 10:16 AM, Dan67 wrote:

    Attention all short seller, you need to cover AMD now or you will be dead! AMD will double the next 6 months!

  • Report this Comment On December 23, 2013, at 10:49 AM, maximusart wrote:

    Oddly, I see the point in this story. This is only because I work in IT and I know that in the world of development and pushing to the next generation of hardware and performance in computing, video games are what demand these companies keep coming out with better product year after year.

    It's like the auto racing industry is where new innovations originate in our daily drivers' car performance. The needs of pro athletes is what drives our footwear and apparel. That's why projects like nasa and goals of going to the moon and mars always have innovations like gps that have trickled down to other products in our economy that you might not think are related but originate because of the need to accomplish a certain goal. It's a fine concept, but it is there.

    I see your point too but selling GPU's that were meant for video gaming to just find a solution to an algorithm in the short term is good for the companies bottom line but in the long term, these units are not going to be used for gaming and they might not get the feedback and data required to advance to the next stage in the video gaming market, people who used video cards for rendering programs (professional photographers), people who do video animation, etc. It's like if people took a car and put it in a garage and never drove it but hooked it up to a "special dyno machine" that spit out loose change for running it for 70 hours straight.

    I think this next point about cryptocurrency will make my point. When these (fill in the blank) coins are made, they only have a certain number max. There are only 8.5 million possible Bitcoins. 220 million litecoins and so on. http://en.wikipedia.org/wiki/Cryptocurrency So this is a finite situation. There is no sustainable market here once this goes mainstream.

    NOTE: THIS IS A BUYING OPPORTUNITY FOR LITECOINS THO IMO. THEY ARE PROJECTED TO GO HIGHER THAN BITCOINS AND ON 11/21/2013 THEY WERE $8.50 US/ LTC .. NOW THEY ARE ALMOST $30 US/LTC

    All the while Nvidia will be making end roads on the GPU market and getting feedback from people actually using the GPU for what it was designed for. What will happen if a generation or two (IT generation = 2 years) of AMD GPU's are out there being used for mining, no feedback on actual gaming or other video related task and gamers and others turn to just Nvidia because every chump and his mother are trying to mine litecoins? Make no mistake, these mining rigs will be set to mine for coins and never used for video purposes for the most part.

    The writer of that article has a point. AMD could be damaged in the long run. This could turn out bad for AMD.

  • Report this Comment On January 17, 2014, at 4:31 PM, Surn wrote:

    More than a month since your article. I drove 50 miles to get the AMD Radeon card I needed and it was a "manufacturer defect "(read as the nerds in the store put it aside for themselves).

    Had to order online after waiting for the next batch... Radeons (AMD) are still selling out.

    AMD is simply squashing the competition...

  • Report this Comment On March 12, 2014, at 10:49 AM, DietLime wrote:

    As a gamer and an enthusiast, he's absolutely right.

    This is one case where selling out is a bad thing.

    Every gamer I know right now

    (read: the market for graphics card that will be sticking around instead of moving on when currencies fail to take off; for a litany of reasons I can't get into with this short post)

    Is pissed off at AMD. AMD has classically been second-hat, the product you buy to save money with a small performance loss. A budget option.

    Radeon cards always had poor driver support, and often had issue running games until they were patched. AMD, their maker, has been "backing out" of competing with Intel in the desktop PC processor market. Nvidia and Intel are in close collusion.

    Bottom line? Nvidia is better technology for gaming. More reliable, more foolproof: and in the past, $40-60 more expensive. Now that Nvidia cards are cheaper than AMD cards many budget gamers are spending the extra $50. They're finding out that the extra $50 buys them not only better performance and more reliable performance, but also better stability. Games run smoother on Nvidia cards with fancy effects enabled, especially physics; and I doubt most people who had previously never owned an nvidia card would ever go back after this debacle.

  • Report this Comment On March 12, 2014, at 11:02 AM, DietLime wrote:

    I mean I'm talking about a situation where Nvidia's now-legacy last-generation tech, my GTX460; when paired with an Intel 4670K?

    That's running games with over 200 players being tracked nearby and easily 30+ on-screen at any moment. Planetside 2. Elder Scrolls Online.

    Go to the support sections for these massively modern games. Each one has a "my (insert radeon card) lags!?!" thread.

    PC gaming isn't going anywhere and the part we replace most often is the graphics card. Nvidia has Shadowplay too, so that's gonna be a big thing: a built-in hardware chip designated to record HD gameplay without impacting performance. You can bet all the spotlight chasers will be going Nvidia. Also Nvidia has adaptive V-sync. Nvidia is actually innovating.

    People calling you an idiot are deluded. There is also a large amount of outsider ignorance about the industry going on in this thread.

    If you want a stable, long-term investment, look to either AMD or Intel. Intel has, with each generation of processor, been working towards making graphics cards obsolete. You buy AMD because they have the best mobile processors and it's going to stay that way. You buy Intel because they have the best large laptop/desktop processors and it's also going to stay that way for a long time.

    Nvidia doesn't need your shares. AMD's shenanigans have already pushed demand up for Nvidia cards so much that they're selling for $30 over their suggested.

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