Crypto-Currencies Much Less Meaningful to Semis in 2018
Summary
We hosted meetings with a crypto-currency expert looking at outlook for GPUs, CPUs and semiconductors in crypto mining. While the Blockchain software technology is here to stay, with applications in crypto-currencies, smart
contracts and multiple markets, we expect crypto-mining will be a much less meaningful market for AMD/NVDA in 2018 (~6-7% of revenues currently) underlining an increased need for AMD/NVDA to focus on core PC/NB/Data Center markets in 2018.
Key Points
Increasing computing complexity makes semis less meaningful in 2018. The
crypto-currency market size is ~$240B with Bitcoin ~55%+ of the market, and
Ethereum the next largest at ~14%, as shown in Exhibit 1. There are over 600+
crypto currencies, but with the top 7 accounting for ~90% of the market, the
remaining 500+ are much more fragmented. Computing (Hash) complexity of
Bitcoin is now at a staggering 12 Million Trillion hash computations per second,
well outside the purview of individual miners with profitable mining now only
done through large pools of miners or cloud mining with broad ASICs. Bitcoin
uses ~100,000x more computing hash/second than Ethereum currently at ~120
Trillion hash per second (Exhibit 2), still using GPUs given smart contracts,
though GPU use could decline significantly in 1H18 as Ethereum moves to PoS
with Casper. There are, nonetheless, smaller crypto-currency applications that
could use GPUs .
Crypto mining moving to software PoS (Proof of Stake) away from GPUs
PoW (Proof of Work). We believe 1H18 could see Ethereum move from
current a Proof of Work (PoW) protocol, which requires GPU mining, to a Proof
of Stake protocol, which does not need GPUs or mining, through a software
upgrade to Metropolis and finally to Casper Fork in March, 2018. While the
miners can still use GPUs for other currencies, the overall use case beside some
enterprise mining might be very small for GPUs/CPUs.
AMD and NVDA have limited (and declining) exposure to crypto. We
believe AMD's exposure to crypto-focused (non video or headless) GPUs is ~
$500M/year or a HSD % of revenue. For NVDA it was ~$70M last quarter and
~$150M for the JulyQ. Given it is extremely difficult to figure if a gaming GPU
is also being used for crypto-mining, we believe exposure at AMD ~10% of
revenue and for NVDA ~6% of revenue (Exhibit 3). No change to estimates. We
believe it is increasingly important for AMD/NVDA to show traction in core
PC/NB, DT, Gaming and Data Center markets in 2018.