Morgan Stanley: GPU demand likely to slow if Ethereum moves to proof-of-stake

If Ethereum moves to proof-of-stake (PoS), as planned, it will remove the need for miners, slow demand for graphics processing units (GPUs) and dramatically reduce energy requirements, Morgan Stanley said in a report Monday.

Ethereum developers are hoping that the Merge will happen by September, and potentially as early as August, but given previous delays, it would not be surprising if this were pushed out to early next year, the report said.

Crypto mining has had a massive impact on the gaming graphics market in the past 18 months, the bank said, driving an estimated 14% of revenue in 2021, but at the same time “substantially contributing to a major graphic shortage which boosted overall mix and pricing.”

GPU demand should slow but Nvidia (NVDA) is less exposed to cryptocurrency mining demand than it was in 2017-19, the note said.

In addition, demand from crypto mining, which contributed to a shortage of graphics cards, started winding down in the first half of the year, the bank noted.

Both Nvidia and AMD (AMD) have argued that they have minimized the downside scenarios from crypto, but Morgan Stanley is of the view that there will be a correction lower in gaming GPU in the first quarter of next year. This will be due to a combination of factors including lower demand due to a reduction in working from home, cryptocurrency migration to PoS, and “tough sequential comps after channel inventory rebuild in 2022,” it added.

Ethereum miners will most likely sell their used GPU equipment after the Merge as it is currently not profitable for all these computers to mine other cryptocurrencies, the bank said, adding that net ether (ETH) supply is expected to fall after the Merge, and may even turn contractionary, so it is unlikely that all the miners become stakers.

Moving to PoS will not solve Ethereum’s scaling problems such as the number of transactions per second or result in lower transaction fees, the report added.

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