Susquehanna reduced its rating to negative from neutral and lowered its price target for AMD shares, citing impending competition from cryptocurrency mining company Bitmain.
"During our travels through Asia last week, we confirmed that Bitmain has already developed an ASIC [application-specific integrated circuit] for mining Ethereum, and is readying the supply chain for shipments in 2Q18," analyst Christopher Rolland wrote in a note to clients Monday. "While Bitmain is likely to be the largest ASIC vendor (currently 70-80% of Bitcoin mining ASICs) and the first to market with this product, we have learned of at least three other companies working on Ethereum ASICs, all at various stages of development."
Cryptocurrency miners use graphics cards based on AMD's and Nvidia's chips to "mine" new coins, which can then be sold or held for future appreciation. Digital currency ethereum is up more than 800 percent over the past 12 months, according to Coinbase data.
Bitmain dominates the "bitcoin" industry with its specialized ASIC chips that are more efficient at mining than graphic chips from AMD and Nvidia. Bernstein has said Bitmain likely made as much as Nvidia did last year. Analysts estimate that most of Bitmain's revenue is generated by selling mining rigs powered by the company's chips.
Rolland believes Bitmain's specialized chip offering for ethereum will hurt demand for PC graphics cards. He estimated ethereum mining-related sales accounted for about 20 percent of AMD's sales and 10 percent of Nvidia's revenue.
As a result the analyst lowered his price target for AMD shares to $7.50 from $13, representing 29 percent downside from Friday's close.
He also reduced his forecast for Nvidia shares to $200 from $215, but did not downgrade the company.
"Nvidia has a stronger and more durable gaming franchise which would help it work through this potential Ethereum-related unwind," he wrote.
The analyst reiterated his neutral rating for Nvidia shares.
Nvidia did not respond to a request for comment. AMD sent this statement:
"A report was published on AMD which hypothesized very high revenue for Ethereum-related GPU sales. As a reminder, on our Q4'17 earnings conference call we stated that the percentage of annual revenue related to Blockchain was approximately mid-single digit percentage in 2017. We had significant growth in the GPU business outside of Blockchain in Q4'17 as we ramped our Radeon Vega products, our GPU compute products, and our Apple business. We also spoke about strength across the rest of our business with AMD Ryzen and AMD EPYC product momentum. We have very compelling long-term drivers for the company including PCs, servers and graphics and our Q1 2018 financial guidance reflects that.
We appreciate the time and attention that investors continue to pay to Blockchain and cryptocurrency, but would also like to keep it in perspective with the multiple other growth opportunities ahead for AMD."
AMD shares declined 1.79 percent Monday, while Nvidia's stock rose 4.94 percent.