By Aaron Pressman
April 26, 2018

Advanced Micro Devices CEO Lisa Su has successfully executed on her multi-year strategy to overhaul the chipmaker’s entire product line and create an array of modern, higher-performance PC and graphics processors. But after pulling AMD’s stock out of the dregs—it was trading under $2 a share in early 2016—and proving the company could stay in business, Su has since struggled to convince Wall Street that she can turn the compelling products into compelling profit gains.

But with AMD’s first quarter report issued on Wednesday, not only sales exceeded expectations, with a 40% jump to $1.65 billion. AMD also showed a four percentage point improvement in its gross margin, to 36%, and operating income of $120 million up from just $11 million a year ago. Analyst Patrick Moorhead of Moor Insights & Strategy called it a “blowout” and credited the growing popularity of AMD’s new Ryzen CPU chips.

AMD’s progress selling its newest chips could finally signal a turning point, or “product inflection,” noted analyst Stacy Rasgon at Bernstein Research. “For the first time since this product cycle kicked off AMD may have given investors at least some reason to dream,” he wrote.

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AMD’s stock, which has been on a rollercoaster this year, jumped 14% on Thursday in midday trading to $11.08. That’s still well down from the 10-year high of $15.65 hit last July, but 16% higher than the price just two weeks ago.

That’s likely because part of Su’s struggle with Wall Street has nothing to do with AMD’s (amd) own strategy, or even the competition from Intel (intc) and Nvidia (nvda). Instead, a major concern revolves around just how much buying demand for AMD graphics cards is coming from digital currency mining operations and how volatile that demand might be as prices of the currencies decline.

Last year, when the prices of various digital currencies such as Ethereum skyrocketed, the computer mining activity that runs on graphics chips like AMD’s new Vega line skyrocketed, too. Now that cryptocurrency prices have retreated somewhat—Ethereum’s is less than half what it was in early January—analysts predict mining activity will wane. Last time that happened, back in 2014, it flooded the market with used graphics cards killing sales at AMD and its competitors.

Su says this time is different, always a tricky argument to make on Wall Street where “this time” is almost never different. But Su offered two propositions to back her theory, adding that AMD has been in touch with major commercial currency mining operations to hear about their plans.

First, unlike 2014 when miners all focused on bitcoin, now there are dozens of major cryptocurrencies. Instead of giving up mining altogether and selling their gear “what we’ve seen is that people who are mining do go from one currency to another depending on what’s happening,” Su said on a call with analysts Wednesday afternoon. The other factor is that some part-time miners buy high-end graphics cards for multiple uses. “We see that there is good demand for, not just blockchain, but for gaming, for the cloud and for those things as well,” Su explained.

Most analysts aren’t sure Su has it right, but booming sales of the various new products, including the Epyc chip for servers, could make a decline in crypto-driven sales irrelevent. In February, AMD unveiled chips which combine its Ryzen CPU with its high-end Vega graphics processor instead of the usual low performers. And last week, the company rolled out its second generation of Ryzen CPUs with better performance for desktop computers.

“We anticipate improving demand and selling prices for AMD’s graphics chips, driven by new Radeon products, and are encouraged by penetration for its Ryzen processors,” analyst Angelo Zino of CFRA Research wrote. “While we see lower blockchain revenue ahead (10% of sales) given industry dynamics, we think investors are underestimating share gain potential of its EPYC server.”

AMD’s forecast for a 50% revenue increase in the second quarter and “mid-20s percent” for all of 2018 incorporated a modest decline in graphics chip demand from miners, CFO Devinder Kumar told analysts. Mining demand accounted for about 10% of such sales in the first quarter, he said.

“There may still be a bit of risk if their estimate of exposure (which at several hundred million dollars feels a little light) is wrong,” writes Bernstein analyst Rasgon.

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