Advanced Micro Devices, Inc. (NASDAQ:AMD) stock is down by more than 17% this week, with about 5% of that decline coming today alone. Unfortunately the chip maker’s stock was priced for perfection going into its earnings report earlier this week, so it’s been downhill since then. AMD’s results just weren’t good enough to keep the momentum going.
AMD stock slides on bitcoin news
What’s even worse is that analysts noted after the chip maker’s earnings report earlier this week that the upside came in the wrong areas: cryptocurrency mining and IP licensing. Both are considered to be unsustainable areas of growth, and AMD management even admitted on the earnings call that cryptocurrency-related demand has been leveling off. AMD’s GPUs have long been a favorite of gamers, but cryptocurrency miners have been using them to mine the digital currency because it requires a lot of computing power.
This also means that AMD stock has been tied to cryptocurrency prices for some time. The more valuable bitcoin, ethereum and other digital currencies are, the more people are going to want to mine them. Bitcoin prices have been up, up and away, although they’ve stalled out around $5,800. Then a couple of bad news items about the cryptocurrency arrived, potentially pressuring AMD stock even more as investors question the sustainability of this part of the chip maker’s business.
Bad news for bitcoin
Satoshi Nakamoto, the person who’s credited with inventing bitcoin is said to be holding approximately 5% of the entire stash, which is worth more than $5 billion. No one knows who this person (or possibly even a group of people) is because that’s a pseudonym, but the problem here, according to CNBC, is that Nakamoto holds the ability to crash the entire bitcoin market. The cryptocurrency is only valuable because it’s rare, so should Nakamoto decide to unload his bitcoin, he/she would flood the market and send the price crashing through the floor.
Another problem for cryptocurrency is that Indonesia’s central bank announced plans to take action against those using virtual currencies for payments. Any time any country has rattled the chains of cryptocurrency, it has sent shockwaves through the market.
AMD stock riding on the wrong markets
In his note following AMD’s earnings release this week, Macquarie analyst Srini Pajjuri said the company’s results were strong but from “the wrong markets.” New product ramps did drive some of the strength, but he said that cryptocurrency drove most of the strength, along with one-time revenues from IP licensing. This isn’t the first time an analyst has raised concerns about cryptocurrency driving strength at AMD either as it was a hot topic over the summer.
He also noted a sequential decline in average selling prices for client processors, which he said suggests that if AMD gain any PC share, it was moderate. He’s concerned that the company’s window of opportunity in PCs could be closing as Intel begins to ramp its next-generation CPUs.
Analysts in general were unimpressed with AMD’s gross margins as well.
Guidance also weighs on AMD stock
Another problem for AMD stock was the company’s guidance, which Barclays analyst Blayne Curtis said was “only in line” and was “below elevated expectations.” The gains from AMD’s Ryzen chips were lackluster, and higher spending offset the strength from the cryptocurrency business.
In general, analysts were hugely bearish on the chip maker’s earnings report. However, most already had Sell or Neutral ratings or the equivalents on AMD stock going into the print. Patrick Moorhead of Moor Insights & Strategy seems to be in the minority, as he doesn’t seem worried about cryptocurrency and said the guidance for a fourth-quarter decline is nothing unusual.
“I’m looking forward to see what AMD can do in the next six months with the new Zen and Vega-based Raven Ridge notebook parts and Epyc driving some revenue,” he said in an email. “Finally, I’m not concerned with the Q4 revenue forecast decline as this is seasonal and attributable to declines in game consoles. This happens every Q4.”
AMD stock initially plunged by about 5% in early trading on Friday before bouncing. The shares are down 2.3% at $11.73 as of this writing.