Forget Crypto: eSports Might Be Where It's At For Nvidia And AMD

Cryptocurrency has grabbed headlines in the semiconductor world in the past year, as demand for GPUs from miners created a shortage in the market and prompted retailers to drive prices through the roof.

Semiconductor stocks like Advanced Micro Devices, Inc. AMD and NVIDIA Corporation NVDA have been feeling some short-term pain from slumping crypto demand. However, Bernstein analysts led by Stacy Rasgon say both stocks should get a long-term boost from the exploding popularity of eSports.

What To Know

Rasgon says the competitive component of eSports requires gamers to gear up with high-end chips, a trend which he says is showing no signs of slowing down.

In fact, Rasgon says a new category of game known as “battle royale,” which includes extremely popular games such as "PUBG" and "Fortnite," requires significantly more advanced hardware for gamers to compete at a high level.

Even among non-competitive gaming enthusiasts, Rasgon says the rise in the popularity of eSports is growing Nvidia’s user base and total addressable market.

“We believe the eSports audience is set to grow to over 550M by 2021, with 250M ‘enthusiasts’ and almost 150M players (all increasing by 75% vs 2017), with NVDA's current ~100M installed base potentially growing to ~135M+ over the same time period due to rising popularity of eSports,” Rasgon said in a Wednesday note.

Why It's Important

As a result, Bernstein projects eSports could add several billions of dollars of revenue to Nvidia’s gaming business in the next several years.

Rasgon says AMD should theoretically benefit from the eSports trend as well, but Nvidia currently dominates the high-end gaming chip market.

Bernstein has an Outperform rating and $275 price target for Nvidia and a Market Perform rating and $13 target for AMD.

Related Links:

'It's Only Going To Continue To Grow': The Economics Of eSports

Evercore: Nvidia Can 'Power Through' Bitmain Ethereum Mining Tailwinds 

Photo courtesy of Epic Games.