AMD Could Be Devastated by the Bitcoin Craze

AMD's (NYSE: AMD  ) flagship graphics card, the Radeon R9 290X, is difficult to find. Newegg, a popular PC component digital storefront is (as I write this) completely sold out, while Amazon's third-party sellers are offering just a handful at inflated prices. This is not a new phenomenon -- AMD's cards have been difficult to find for months.

The R9 290X was designed to offer PC gamers unprecedented graphical power, competing with NVIDIA's (NASDAQ: NVDA  ) Geforce GTX780. But rather than PC gamers, much of the demand for AMD's card is coming from the cryptocurrency community. Unfortunately for AMD, this could weigh on its attempt to construct a video card ecosystem, something it is working hard to build.

Not all demand is the same
Admittedly, my premise may sound nonsensical -- why on earth should outrageous demand be seen as a negative? If AMD is selling more graphics cards, shouldn't that be a positive for the company? In the short run, it most definitely is. But for long-term shareholders, it could limit AMD's growth.

Although AMD's R9 290X was made for PC gaming, much of the demand for AMD's graphics cards isn't coming from PC gamers. Instead, the cryptocurrency community appears to be the driving force behind the record demand AMD is seeing.

Producing cryptocurrency (Bitcoin being the most famous example) requires "mining" -- roughly speaking, computers work to solve a series of high-level math problems that become more difficult over time. For the most part, faster computers with better parts are better at mining than slower computers with less-expensive parts.

Because of their unique architecture, AMD's high-end graphics cards are better suited for cryptocurrency mining than NVIDIA's -- able to produce far more coins in a much shorter period of time.Last month, iBuyPower, a company that specializes in building custom, high-end PC gaming rigs, unveiled a new PC targeted specifically at cryptocurrency miners. Notably, it comes equipped with AMD graphics cards.

To be fair, Bitcoin has been around for too long at this point for AMD's cards to be effective in the mining process; the problems have become so complex that Bitcoin miners have turned to speciality processors. That said, the larger Bitcoin craze has produced a number of alternative currencies, including Litecoin and Dogecoin, that can be mined with AMD cards and exchanged for Bitcoin.

Dueling ecosystems
Given that AMD's cards have become difficult to find and expensive to buy, PC gamers, looking to update their graphics cards, might be far more inclined to choose a high-end NVIDIA card over a rival part from AMD.

This is important, because right now both companies -- AMD and NVIDIA -- are working to build ecosystems around their proprietary technology.

AMD is pushing Mantle, a new graphics API that promises better performance. When coding PC games, developers use APIs and SDKs to get their games to run on a variety of different hardware. AMD is working with a number of companies, including Square Enix, to build Mantle support into its upcoming PC games.

Games written for Mantle perform (sometimes far) better when played on PCs equipped with newer AMD cards. It would be in AMD's best interest to get as many gamers using AMD cards as possible, so that more developers support Mantle, in turn driving more demand for AMD's cards.

NVIDIA, meanwhile, has something similar, though quite different, in the works. Rather than create an API, NVIDIA is pushing a technology called G-Sync, which promises to improve the performance of PC games when paired with G-Sync compatible monitors.

PC gamers may purchase a new graphics card on a regular basis, but they may stick with the same monitor for years. If they buy a new NVIDIA card, and pair it with a matching, G-Sync compatible monitor, they're likely to be NVIDIA customers so long as they have that display.

Short-term gain, long-term pain
The craze around Bitcoin and other alternative crypto currencies has created record demand for AMD's graphics cards. While that might benefit AMD in the short run, in the long run, it could prove painful.

In order for AMD's Mantle initiative to succeed, it needs gamers to buy in -- hard to do when miners are making it difficult, if not impossible, to acquire AMD's video cards.

Unable to find an R9 290X in stock, gamers could turn to NVIDIA and the promise of its G-Sync technology. Ensnared in NVIDIA's upstart ecosystem, they could remain NVIDIA customers long after the Bitcoin craze has faded from memory.

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Read/Post Comments (10) | Recommend This Article (0)

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On February 22, 2014, at 3:25 PM, MasterWhipper wrote:

    You should be put in jail. A minute of research can show the GPU has no part in Bitcoin mining. Bitcoin doesn't use the GPU to calculate only CPU. You're deplorable people who can't even put more than 5 minutes of work behind their bashing.

  • Report this Comment On February 22, 2014, at 6:56 PM, jon34560 wrote:

    Great article, but it looks like the next generation of Nvidia cards (Maxwell) will be competitive with the current AMD R9 cards once the high end variants are released. Forbs has an article about the $150 750 Ti card doing 250 kh/s. My R9 280x does 650 ish...

  • Report this Comment On February 22, 2014, at 6:57 PM, jon34560 wrote:

    Re: MasterWhipper i'm not sure if your trolling or just trying to be silly? It's not funny in any case.

  • Report this Comment On February 23, 2014, at 12:09 PM, KenLuskin wrote:

    >>>Admittedly, my premise may sound nonsensical<<<

    It NOT only "sounds" NONsensical its IS !!!

    AMD's present line of discrete GPUs is FAR better at EVERY $$ level than Nvidia!

    Try READING the reviews from ANANDTech!!!

    NOT only are ALL the new AAA games being OPTIMIZED from AMD Graphics, which MEANS the MANTLE API, which is FREE!!!

    But, only AMD can provide DUAL GRAPHICS between their own APUs and their own discrete GPUs on PCs!!

    WHY?

    Because Intels integrated graphics and Nvidia GPUs have different architectures!!!

    AMD will OBLITERATE Nvidia over the next year!!!

  • Report this Comment On February 23, 2014, at 1:17 PM, FolioBilow wrote:

    Another short scared with an emphasis exaggerated to created FUD around AMD- AMD shorts must be panicking

  • Report this Comment On February 23, 2014, at 7:24 PM, cryptomarket wrote:

    Oh poor AMD - making too many sales right now! This analysis makes one huge and wrong assumption: that people will dump their mining gear onto ebay when cryptocurrencies are no longer profitable to mine. This is false. There will always be profitable cryptocurrencies to mine... always. Just look at GridCoin for example. These types of currencies will spring up, and keep springing up. AMD should be more worried about losing their mining king title to other processor co's. For more analysis please check out:

    http:crypto-market-news.weebly.com

  • Report this Comment On February 24, 2014, at 3:21 AM, rav55 wrote:

    @Mattera

    You should just go back to analyzing consumer cleaning products and stay out of topics that investors actually know something about.

    G-Sync is a fancy word for Dynamic Refresh rate. It has been a feature of AMD video cards for several generations. All G-Sync or Dynamic refresh is the ability to change the video sync of the monitor on the fly to optimize the frame rate to a sync rate. This does nothing to improve the actual performance of the card it just "tunes" the monitor to your games frame rate. nVidia wasn;t getting any press with evryone talking about Mantle so they made something up. While AMD is actually improving the GUI experience with Mantle; nVdia is just jiving you with G-Sinc Smoke and Mirrors. What a laugh!!! Then nVidia actually expects you to go out and purchase a special monitor. What a bigger joke.

    And don’t argue with me either Google it and do some research for a change.

    Radeon is here to stay with crypto-currency cards. And AMD is producing more. And one reason that they will never be obsolete is the success of the currency depends upon how large the distributed network is. That is why Litecoin uses a different cypto than Bitcoin uses. The intention was for it to be CPU friendly but they did not suspect that AMD had their hardware optimized for integer programming as well as floating point.

    This is not something that nVidia can fix with a driver upgrade. It’s all about the hardware.

    The other beautiful thing is that you do not need to use the R9 290 to make money. The older cards work as well running in the background while you have your computer on. You may only be making a few Lite-coins a month but it will help pay your electric bill.

    It is also not likely that any other crypto-currency will change the Lite-coin model. As the more people mine it then the more people will use it. As other crypto-currencies are developed then they will need to have an existing infrastructure of distributed decryption. That means that Radeon will never become obsolete.

    Custom silicon takes a year to develop and costs too much money.

  • Report this Comment On February 24, 2014, at 3:40 AM, rav55 wrote:

    This R9-290x sales for mining hurts nothing and just shows what a better card Radeon is compared to GTX.

    In actual fact the 290x is not the best card to use for mining. That card uses too much power. The 280x is best. And you know this. The 290x is selling out because gamers are buying it!!!! And they are mining cons when they are not gaming becasue why not?

    The minging app just runs in the back ground. Ka-ching, ka-ching, ka-ching; while they are at work, or typing their homework....

    The 2 week chinese new years saw distribution drop across the boards as fabs and testing shut down for the holiday. That is why they sold out. But the channel is filling up again.

    It's scarcity just makes it all the more desireable. It's human nature to desire what you can not have. Besides mining crypto-currencies is perfect for gamers, now you can spend beaucoup bucks on a rockin machine and it will make money for you.

    As eveybody on Wall Street knows.

    Making money IS the only game that matters.

    So stop your whinning Mattera go out and buy 4 radeon cards and get with the game.

  • Report this Comment On February 25, 2014, at 2:37 AM, jason42 wrote:

    So let me get this straight... AMD making money hand over fist is a bad thing? especially for Wall Street which only cares about 1 quarter at a time... ridiculous article and opinion. This columnist must be shorting AMD or has friends who are.

  • Report this Comment On February 26, 2014, at 10:23 AM, crskub wrote:

    The only joke here is the investors bickering over this silly article. I like AMD, the thing that sets them apart is their vision for the future, not their current products and relation to mining. With AMD holding a steady supply of GPUs to Microsoft and Sony, you can expect they have enough cash in their pocket to focus on other things. Mobile, virtualization, servers... etc.

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