Semiconductors are a fascinating aspect of modern-day life. Found in nearly everything and the size of a small coin, they allow the world to operate efficiently. Thanks to the pandemic-induced digital shift, they have been in demand more than ever, but unfortunately, this has caused the supply chain to fall entirely out of equilibrium.

In addition to being exciting pieces of technology, semiconductor companies have also been a beautiful place for investors to park cash. Two of the big winners within the semiconductor space that have quickly become investors’ favorites over the years include Advanced Micro Devices (AMD Quick QuoteAMD - Free Report) and Nvidia (NVDA Quick QuoteNVDA - Free Report) .

We can see how prosperous of an investment these two companies have been over the last three years in the chart below. Although a tech-rout has sent these companies’ shares on a downwards trajectory for the majority of 2022, the gains have still been massive.

AMD, NVDA, S&P 500 Performance Since 5/13/2019

Image Source: Zacks Investment Research

Crypto Mining

A unique way that consumers use semiconductor technology is cryptocurrency mining. We all know how hot of a topic cryptocurrency is and just how volatile it is as well. Crypto bulls believe that these coins and currencies are the next big thing, especially as we move closer to the widely-speculated metaverse – and this is why they are mined.

Cryptocurrency mining is a beast that’s difficult to understand and fully grasp. However, here’s a somewhat simple explanation of how it works.

Crypto mining is defined as the process of validating a cryptocurrency transaction. For example, Bitcoin (BTC) utilizes a distributed public ledger system that records all financial transactions. These transactions are linked to prior and subsequent transactions, which creates a chain of time-stamped records called a blockchain (I’m sure you’ve heard that word thousands of times). Validation of these transactions is a challenging mathematical problem, and that is where the crypto mining computers come in. Once the computer successfully completes this math problem, it’s allowed to post the transaction to the public ledger and be rewarded via cryptocurrency.

It’s a fascinating process that has been lucrative for many following the insane runs that crypto has gone on over the last several years. However, it is a costly process, and many believe that the power output needed to mine cryptocurrencies outweighs its benefits. There have been instances of people setting up crypto mines in coffee shops, warehouses, and many other places as an individual's energy cost becomes too steep for them to handle. In some areas, people looking to mine crypto have to obtain a legal permit to use and draw the vast amount of energy needed for the process.

Nvidia In The Crosshairs

Now, here is where things become interesting for one semiconductor company mentioned above – Nvidia. The SEC dropped a bomb on the company, slapping it with a $5.5 million fine for allegations that NVDA did not properly tell investors how much crypto mining had impacted its gaming business in FY18.

The report says, “During the second and third fiscal quarters of 2018, as certain crypto asset prices rose, users of NVIDIA’s GPUs were increasingly performing crypto mining. NVIDIA had information indicating that crypto mining was a significant factor in the year-over-year growth in revenue from the sale of GPUs that NVIDIA designed and marketed for gaming. The company, however, did not disclose this in the company’s Forms 10-Q for these quarters as required.”

Crypto Mining Processors

Senior management within NVDA desired to shelter its gaming business from crypto miners while simultaneously capturing the extreme demand for crypto mining. To achieve this, NVDA released a catalog of crypto mining processors, known as CMPs. The company identified crypto mining as a massive element of the OEM GPU sales within the GPU reportable segment revenue in its quarterly reports.

Although it’s never a good look to be targeted by the SEC, NVDA should continue to perform well in the future and, hopefully, let investors know what is actually driving growth. Additionally, with all of the haywire going down in the crypto markets as of late, this development has become even more interesting.  

Quarterly Performances

Let’s look at NVDA and two other chip giants’ recent quarterly performances: Advanced Micro Devices (AMD Quick QuoteAMD - Free Report) and Intel (INTC Quick QuoteINTC - Free Report) .

NVDA exceeded EPS estimates in its latest quarterly report by 8%, and over its last four quarterly releases, the company has an average EPS surprise of 7%. Earnings are forecasted to grow 25% for the current year, and bottom line growth is expected to be 17%. Additionally, sales are expected to grow to 28% for the current fiscal year.

NVDA is a Zacks Rank #3 (Hold) with an overall VGM Score of a B.

Over the last four quarters, AMD has acquired an average EPS surprise of nearly 19%, and in its latest quarterly release, the company exceeded EPS estimates by a notable 25%. Earnings are expected to grow 55% for the current year, and in the long-term, the bottom line is expected to expand by 33% over the next three-to-five years. Additionally, the top line is forecasted to grow by 55% year-over-year from 2021 to 2022.

AMD is a Zacks Rank #3 (Hold) with an overall VGM Score of an A.

Intel has a four-quarter trailing average EPS surprise in the double-digits at 26%, and in its latest quarter, the company beat EPS estimates by a respectable 9%. Earnings are expected to decline 36% for the current year, and sales are also forecasted to decline by 3% in FY22. Furthermore, Intel’s bottom line is expected to grow by 8% in the long term.

INTC is a Zacks Rank #3 with an overall VGM Score of a B.