Many cryptocurrencies have generated dizzying gains in recent years. The price of a single Bitcoin (BTC 5.55%), the world's top cryptocurrency, surged from just over $100 in Oct. 2013 to more than $54,000 today. Proponents of cryptocurrencies claim they're more secure and stable than fiat currencies, which are backed by governments instead of algorithms.
There are plenty of ways to ride this secular trend, including direct investments in cryptocurrencies, exchange-traded funds (ETFs), and companies that own Bitcoin or accept cryptocurrency payments.
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Another way to play the cryptocurrency boom is to invest in chipmakers, since cryptocurrencies need to be mined with powerful chips. But Bitmain, which designs most of the ASIC (application-specific integrated circuit) chips used for mining Bitcoin, is still a privately held Chinese company.
Some investors might end their search with Bitmain, but plenty of other chipmakers could still benefit from the crypto mining boom. Let's take a closer look at three of those companies: NVIDIA (NVDA 0.76%), AMD (AMD 0.69%), and Intel (INTC -1.79%).
A double-edged sword for NVIDIA
Traditional GPUs can no longer effectively mine Bitcoin for a profit, but they can still be used to mine cheaper cryptocurrencies such as Ethereum (ETH 4.26%). The usage of gaming GPUs to mine those cryptocurrencies has been a double-edged sword for NVIDIA.
NVIDIA's GPU sales rose just 9% in fiscal 2017, which ended in January of the calendar year, but soared 39% in fiscal 2018 and jumped another 40% in fiscal 2019 as crypto miners hoarded its GPUs.
That feverish demand drove up prices of GPUs for NVIDIA's core market of PC gamers. When cryptocurrency prices subsequently cooled off, many miners dumped their used cards -- which throttled sales of NVIDIA's newest GPUs.
As a result, NVIDIA's GPU sales fell 7% in fiscal 2020 before recovering in fiscal 2021. To avoid another bubble, NVIDIA recently announced it would intentionally cut the "hash rate", which measures a chip's efficiency in mining cryptocurrencies, in half for its newest high-end GPUs. However, a group of Chinese hackers recently bypassed those limits to mine Ethereum at a full hash rate.
That news is troubling, but NVIDIA recently unveiled a new line of CMP (cryptocurrency mining processor) products for miners. These products -- which are optimized for mining, consume less power, and lack external display ports -- can help NVIDIA proactively pop the next bubble in its gaming business while profiting from the secular expansion of the crypto mining market.
An interesting opportunity for AMD's newest business
NVIDIA's main rival, AMD (AMD 0.69%), also struggled during the previous cryptocurrency bubble. AMD hasn't followed NVIDIA's lead by throttling hash rates or launching dedicated chips for cryptocurrency mining yet. However, the latest rumors suggest AMD could launch a crypto-only Navi GPU in the near future to prevent another crypto-induced rush on gaming GPUs.
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However, AMD's future in cryptocurrency mining might rely more on its upcoming acquisition of Xilinx (XLNX), the world's largest manufacturer of FPGAs (field-programmable gate arrays), instead of its GPU business. FPGAs can be reprogrammed for myriad purposes, including cryptocurrency mining, and the chips already power dedicated mining systems.
FPGAs aren't as efficient in mining tasks as ASICs, but they're more efficient than GPUs for mining popular cryptocurrencies like Ethereum if they're paired with HBM (high-bandwidth memory) chips.
AMD already expects its takeover of Xilinx, which is expected to close by the end of 2021, to expand its presence in the data center market and be "immediately accretive" to its margins, cash flows, and earnings per share. Adding FPGA-based cryptocurrency mining systems to that list would be a nice bonus that might boost its revenue and diversify its core business away from x86 CPUs and discrete GPUs.
But don't forget about Intel
AMD's acquisition of Xilinx directly mirrors Intel's purchase of Altera, Xilinx's biggest rival in the FPGA market, in late 2015. Intel currently sells Altera's chips through its programmable solutions group (PSG), which generated just 2% of its revenue last year.
However, rising interest in FPGA-powered mining systems as alternatives to ASIC-powered systems could boost Intel's PSG revenue over the next few years. Intel hasn't said much about cryptocurrencies, but it quietly filed a patent for an SoC (system on chip) optimized for crypto-mining tasks back in 2019. The SoC design could power mining systems running on GPUs, ASICs, and FPGAs.
Intel is currently struggling with many challenges, including development and production challenges for its latest CPUs, market share losses to AMD in the PC market, and a CEO change. However, investors shouldn't ignore Intel's turnaround efforts, its dominance of the data center market, and the growth potential of its PSG segment amid the cryptocurrency mining boom.
