(Note: The creator of this exhaustive analysis is an expert in financial writing and portfolio stewardship.)
As Bitcoin’s value witnessed an upward trajectory in the summer of 2017, speculation grew that Nvidia Corp. would be the key beneficiary. Both firms produce semiconductors utilized in the mining of Bitcoin and several cryptocurrencies. However, since the initiation of 2018, Bitcoin’s value plummeted approximately by 45%, contrasted by Nvidia’s shares climbing nearly 23%, and AMD appreciating almost 26%.
The divergence in growth between Bitcoin and these semiconductor stocks should leave us unsurprised. Both Nvidia and AMD derive a minor fraction of their income from the cryptocurrency mining trade. A report in December highlighted that Nvidia’s third-quarter revenue comprised merely 2.5% from cryptocurrencies, while AMD had already indicated diminishing trends in this area.
AMD’s stock experienced a phase where prices were buoyed by Bitcoin’s rise, though by the end of 2017, they were actually down by nearly 10%. It once again validated the notion that AMD’s association with Bitcoin was based more on perception than actual economic impact, as AMD’s shares failed to capitalize on Bitcoin’s steep increase.
Given Nvidia’s minimal revenue share from Bitcoin and AMD’s lack of participation in Bitcoin’s significant price surge, it’s unsurprising that the drop in Bitcoin’s price had minimal effects on either stock. This indicates that investors may often draw connections and overemphasize these links in stock valuations, often beyond their warranted significance.
This situation teaches a critical lesson: comprehending our investments is essential. A stock presumed to benefit from another asset doesn’t always reflect reality. Nevertheless, some registered investment advisers and the managers of actively managed, long-term Thematic Growth Portfolios adhere to buying and holding stocks within a three to five-year horizon. This prudent strategy ensures that the actualities of market connections are taken into account, rather than mere perceptions.