As the price of bitcoin shoots past new highs since the start of the year, the prospect of so-called bitcoin mining becomes more and more alluring. Not surprisingly, companies that provide bitcoin mining-related hardware, such as high-power graphics cards, are profiting from the bitcoin mining boom. Fortunately for investors, some of these companies are publicly traded on the stock exchange.
What is Bitcoin Mining?
Mining bitcoin refers to the generation of new bitcoins by bitcoin network participants who use their computational power to verify and process transactions on the bitcoin blockchain. By ensuring that the network is running smoothly and all correct transactions are being processed, bitcoin miners are financially rewarded with fresh bitcoin.
Currently, the bitcoin block reward is 12.5, which means that miners receive 12.5 bitcoins for every new block mined on the blockchain. A new block is created roughly every 10 minutes, contains several confirmed transactions, and will have had several miners involved in the process. Hence, the 12.5 new bitcoins will be split among the miners involved in the creation of the block. That means miners are in competition with each other to confirm more and more transactions to get a bigger piece of the bitcoin mining rewards.
Therefore, there is somewhat of a hardware arms race among bitcoin mining operations as they continuously try to increase the speed and efficiency of their mining rigs. One way of doing that is by investing in the newest and most powerful graphics cards that can be used to boost mining efficiency.
Top Bitcoin Mining Stocks
There are two publicly-traded US companies that produce bitcoin mining graphics cards and, unsurprisingly, their share prices have been increasing along with the price of bitcoin since the start of the sharp bitcoin rally in 2017. The two listed companies are AMD and Nvidia.
Advanced Micro Devices (NASDAQ:AMD)
Advanced Micro Devices Inc. is a California-based company that develops computer processors and primarily focuses its GPU products on the gaming community. However, some of their GPUs can also be used to improve the efficiency of bitcoin mining rigs. This has been very beneficial for the company as the bitcoin mining boom has boosted the demand for its graphics cards in recent months.
An AMD spokesperson told CNBC:
“The gaming market remains our priority. We are seeing solid demand for our Polaris-based offerings in the gaming and newly resurgent cryptocurrency mining markets based on the strong performance we are delivering.”
AMD is listed on the Nasdaq exchange and has a market capitalization of $12 billion. In the past 12 months, its shares generated a return on investment of over 75 percent and in its last earnings report, the company increased its projecting sales by $100 million dollars for the current quarter.
Nvidia Corporation is a California-based GPU and computer chip producer that focuses its products on the gaming and professional markets. Similarly to AMD, it has developed GPUs that are particularly efficient for bitcoin mining to capitalize on the resurgence of the bitcoin mining boom.
Nvidia’s Pascal-based GPUs are said to be particularly effective for bitcoin mining and superior to those of AMD. Hence, they have gained substantial popularity among mining operations in recent months, which has boosted the company’s earnings.
According to research conducted by Mitch Steeve, a Capital Markets Analyst at RBC, “If we switch to building a full Data Center environment, electrical costs become increasingly more important (Bitcoin environment), and the older NVIDIA GPUs outperform AMD over the course of a year.”
Nvidia is listed on the Nasdaq exchange and has a market capitalization of around $100 billion and has generated a return of over 150 percent in the past 12 months for its shareholders.
Nvidia has been shown to have a closer correlation with the price of bitcoin compared to AMD. Hence, if you want indirect exposure to the price of bitcoin as well as bitcoin mining in your stock portfolio, Nvidia might be the better stock pick.
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