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Chipmakers Nvidia, AMD Ride Cryptocurrency Wave — for Now

  • Surge in ethereum market may provide short-term revenue boost
  • Miners use the powerful processors to unlock digital value

During California’s Gold Rush, it was often the sellers of pickaxes and shovels who made the most money. In the frenzy to get rich quick from cryptocurrencies, some investors are calling computer chipmakers the modern-day equivalent.

Shares of Nvidia Corp. and Advanced Micro Devices Inc. have gained at least 14 percent since the beginning of June, spurred in part by about a 10-fold boom from April to June in a market, known as ethereum, for a currency that can be used to buy computing power over the internet.

What’s the link between ethereum and these Silicon Valley chipmakers? It lies in the really powerful graphics processors, designed to make computer games more realistic, that are also needed to gain access to encrypted digital currencies. Nvidia and AMD have rallied in the last month and a half even as investors have ignored chip stocks leaving the benchmark Philadelphia Stock Exchange Semiconductor Index up about 1 percent. Nvidia has gained 14 percent and AMD rallied 27 percent.

While some of that has come from optimism around new products for other markets, analysts are projecting that sales related to cryptocurrencies will result in a spike in revenue for both companies.

“The sharp increase in demand from cryptocurrency miners has rapidly depleted excess channel inventory” for Nvidia and AMD graphics cards, Michael McConnell, an analyst at Pacific Crest Securities, wrote in a recent note to clients. “Surging demand from cryptocurrency miners in China and Eastern Europe since early May” will boost quarterly unit sales by as much as 20 percent, the analyst predicted, a sharp turnaround from his prior forecast that saw at least a 10 percent contraction in sales.

Even so, investors shouldn’t bank on a lasting impact from the cryptocurrency boom, said Stacy Rasgon, an analyst at Sanford C. Bernstein & Co.

“This has happened before,” Rasgon said. “It lasted about a quarter.”

In the case of ethereum, digital-currency miners use machines outfitted with powerful chips to solve puzzles in a competition to win blocks of code. Those blocks of code are called ether, and they...