While commenting on cryptocurrency exposure at both Nvidia (NVDA) and AMD (AMD), Jefferies analyst Mark Lipacis argued that the risk of a "crypo-driven" inventory correction driving material downside is low in the near-term.

CRYPTOCURRENCIES NOT 'A FAD': In a research note this morning, Jefferies' Lipacis told investors that he estimates cryptocurrency revenues accounted for about 3% of quarterly sales for AMD, and about 10% for Nvidia in the second quarter of 2017. The analyst also argued that he thinks the risk of a "crypto-driven" inventory correction driving material downside is low in the near-term because cryptocurrency prices increased materially since bottoming in July, and both AMD and Nvidia have introduced "cryptospecific GPU SKUs" that have a low risk of competing with core gaming Graphics Processing Units, or GPUs, in secondary markets like eBay (EBAY). If cryptocurrency prices dramatically decline again, AMD's risk of competing with its own GPUs resold by miners in secondary markets is lower than the 2013-2015 cycle, the analyst added. Additionally, Lipacis told investors that he does not think cryptocurrencies are "a fad." The technology they are based on, called Blockchain, supports secure accounting of distributed ledgers and has applications in financial services beyond cryptocurrencies, he contended, adding that he expects demand for Blockchain GPUs to continue to grow and become an important driver for GPU growth, even if with some degree of volatility. Lipacis reiterated a Buy rating on both stocks.

PRICE ACTION: In late morning trading, shares of AMD have gained over 2% to $12.52, while Nvidia's stock is up almost 3% to $167.94.