The Wolves of Wall Street have been stirring the crypto pot again this week by downgrading ratings for chipmaker Advanced Micro Devices (AMD). Citing a faltering cryptocurrency market and a decline in demand for mining in 2018, Morgan Stanley reduced its ratings from equal-weight to underweight for the California based semiconductor giant. The results were instant, a 9% fall in AMD stock prices following the report.
Graphics cards producers AMD and Nvidia have been flying high in recent months as demand for top end GPUs has surged from crypto miners causing market shortages and price increases. According to Morgan Stanley, cryptocurrencies account for 9% of AMD’s total sales and it argues that the mining frenzy will continue to fade.
Despite the massive surge in Bitcoin prices in recent months, investors remain skeptical about companies that have profited largely from this boom in mining. They are starting to turn more cautious towards profits made from the digital currency explosion this year. AMD had gained 30% earlier this year resulting in better than expected earnings and sales in the third quarter, however, a weaker forecast for the fourth quarter sent stock prices down by 14% last week.
Morgan Stanley just added fuel to the fire with their predictions for a weaker future for cryptocurrencies. They predict that sales driven by coin mining will decline by 50% next year which equates to a $250 million drop in revenue.
Rival company Nvidia are faring much better and have so far escaped the wrath of Wall Street analysts. Shares reached an all-time high last week and cleared $200 for the first time. Nvidia has reached into artificial intelligence technology where its chips are expected to power up to 80% of the market in coming years.
It is true that mining has become harder and is largely beyond the reach of the average person with a reasonably powered desktop PC. The majority of mining operations are now carried out in China in huge mega-factories but they still need to rely on powerful graphics processors to get the job done.
The bottom line is that Wall Street and bankers don’t like cryptos, they can’t control them, so the weapons of fear and doubt are often used to convince traders and investors that it is all hype and the bubble will burst. Only time will tell if there is any truth in these claims.