When Advanced Micro Devices (NASDAQ:AMD) reports its second-quarter results after the market closes on Wednesday, it will become clearer to investors exactly how much AMD depends on the cryptocurrency market. The company claims that just a mid-single-digit percentage of sales in 2017 can be attributed to cryptocurrency miners buying up its graphics cards, but other estimates are much higher.

An uncertain revenue hit

While AMD's management has been downplaying the role of cryptocurrency on its results as cryptocurrency prices plunge, some analysts are telling a very different story.

  • Jon Peddie Research estimates that cryptocurrency-related sales of graphics cards totaled $776 million in 2017, with AMD "the primary benefactor of those sales." If two-thirds of those sales went to AMD, cryptocurrency was responsible for around 10% of its total revenue in 2017 and roughly 50% of its revenue growth.
  • Susquehanna analyst Christopher Rolland estimates that AMD's GPU sell-through for Ethereum mining has dropped by as much as 75% quarter over quarter, creating a revenue hole of $290 million.
  • BlueFin Research Partners analyst Paul Peterson estimates that overall graphics card sales have declined by 50% in North America and Europe. He says that demand from gamers hasn't bounced back despite normalizing prices. "AMD graphics outlook is ugly," Peterson said.
AMD's Radeon Vega graphics chip.

Image source: AMD.

Determining how much demand for graphics cards is coming from cryptocurrency miners isn't easy. There are some cryptocurrency-specific cards available -- those are easy to track. But cryptocurrency miners have also been buying gaming cards through retail outlets, and some may use them for both gaming and mining. Exactly how much of that demand sticks around if mining no longer makes sense is unclear.

It's possible that AMD is vastly underestimating how much of its graphics business is tied to cryptocurrency. If that's the case, its second-quarter results may come up well short of expectations.

The bright side

The good news for AMD investors is that the company's CPU business doesn't share the same problems as the GPU business. AMD's Ryzen PC CPUs are competitive with Intel's products, especially after the company launched second-generation chips earlier this year. And its EPYC server chips are slowly gaining share in the data center space, with AMD targeting a mid-single-digit market share by the end of the year.

That growth may be enough to offset any weakness in the GPU business, but it could fall short if the worst-case scenario plays out.

AMD is also in decent financial shape, so it should be able to weather a downturn in GPU demand if it materializes. A secondary offering and some asset sales in the past few years have helped push the company's cash balance above $1 billion. There's about $1.4 billion of debt on the balance sheet, but investors should be pretty comfortable with the company's cash position.

How much of AMD's growth has been the result of the previously booming cryptocurrency market? And how much will disappear now that crypto prices have plunged? We'll know more on Wednesday.