Are Cryptocurrency Woes Dragging AMD And Nvidia Shares Lower?

Amid another brutal morning of trading for the newly-volatile tech sector, investors are focusing on the latest slump in shares of AMD AMD and Nvidia NVDA after reports suggested that a decline in cryptocurrency mining demand could be negatively impacting the GPU market.

According to Morgan Stanley analyst Joseph Moore, falling Ethereum prices are starting to suck the life out of GPU demand. The popular digital coin dipped to nearly $370 last week after peaking at about $1,300 earlier this year.

The entire cryptocurrency market has suffered from profit taking and increased regulatory pressure over the past few months, but volatility in Ethereum could be having a unique effect on GPU makers like AMD and Nvidia. The mining community for this coin, which remains the second-largest cryptocurrency in terms of total market capitalization, continues to rely on these high-powered processors while miners of other digital assets and tokens have moved to more-expensive, purpose-built machines.

And with prices at their current levels, the economics of mining Ethereum are starting to make less sense given the overhead costs associated with running these rigs—including device maintenance and electricity.

Moore and Morgan Stanley see the lack of incentive to mine having an effect on the prices of GPUs. The top crypto-mining cards from AMD and Nvidia were once difficult to get one's hands on, but now prices are starting to slump. According to Morgan Stanley, the cost of AMD's Radeon 580 is down from $530 to $399 on Amazon, and the price of Nvidia's GeForce 1060/6GB is down from $500 to $399.

Moore did mention that the impact of sluggish cryptocurrency demand is likely to have a bigger impact on AMD's business. The company recently said its revenue exposure to the crypto market was in the mid-single digits last year, and Morgan Stanley's latest note estimates that this exposure climbed to about 10% in the fourth quarter.

Meanwhile, Moore said that Nvidia's products witness lower hash rates and should therefore cause the company to have significantly lower exposure to the mining industry. Nvidia's management has also been hesitant to consider cryptocurrencies a driving force behind its growth.

"While the overall contribution of cryptocurrency to our business remains difficult to quantify, we believe it was a higher percentage of revenue than the prior quarter. That said, our main focus remains on our core gaming market, as cryptocurrency trends will likely remain volatile," said Nvidia CFO Colette Kress in the company's latest earnings conference call.

Nvidia CEO Jensen Huang doubled down on this sentiment, adding that his management team's outlook models crypto "approximately flat."

Nevertheless, shares of Nvidia were down as much as 4% in morning trading Monday following Morgan Stanley's note. Meanwhile, AMD shares were down just over 5%.

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