Falling graphics chip prices raise questions about whether an end to the shortage is in sight

A sharp drop in graphics chip prices could portend a quick and unexpected end to a global chip crunch that has crippled manufacturing from smartphones to cars, and the issue will be central to companies reporting results this week.

As Intel, Qualcomm and others report, investors will gauge how much lower consumer spending due to inflation, China’s COVID lockdown and Russia’s invasion of Ukraine are offsetting market lockdowns. the supply chain for microchips.

The trigger is a drop in the prices of GPUs, or graphics processing units, which are the brains of gaming machines and are spreading to other uses.

Baird analysts recently downgraded GPU maker Nvidia to “neutral” after prices plummeted. So far this year, Nvidia stock is down around 31% and rival Advanced Micro Devices has fallen around 37%, compared to a drop of around 22% on the SE semiconductor index. Philadelphia. Both companies declined to comment.

GPU prices are always priced higher, but smaller. Susquehanna analyst Christopher Rolland said earlier this month that the markup over the manufacturer’s suggested retail price or MSRP fell to 41% from 77%.

Graphics chip and hardware news site 3DCenter, which tracks graphics chip prices in Europe, reported that the price of AMD’s Radeon RX6000 and Nvidia’s GeForce RTX30, both used for gaming , has steadily fallen to less than 20% above MSRP, from 80% at the start of the year.

Still, recent Reuters checks revealed that Nvidia’s GeForce graphics cards remain largely out of stock at retailers like BestBuy and Newegg Commerce.

Baird senior analyst Tristan Gerra told Reuters that if electronics companies buying chips expect prices to drop further, they will cut stockpiles of grease, further reduce purchases and put pressure on prices. .

“It’s a vicious circle.” Gerra said.

GPU demand could also fall as the Ethereum cryptocurrency is expected to change how it operates in late summer, reducing demand for the graphics chips that power systems used to mine cryptocurrency today. according to analysts.

There is some debate over whether the price drop will spread throughout the chip industry.

Slowing demand from the PC and smartphone markets is also driving prices down for other chips such as edge processors like CPUs and some memory chips, according to Summit Insights Group analyst Kinngai Chan, who expects the supply of some other chips made on older machines to face overcapacity in the second half of this year.

But Bank of America said weakness in the gaming or cryptocurrency mining segments could be offset by strength in data center demand for graphics chips and reaffirmed its “buy” rating for Nvidia. .

Meanwhile, major chipmakers including Intel and TSMC are planning multi-billion dollar expansions.

“Between all the fabulous investing and then the whole uptrend that the shortage wasn’t going to end until 2023, 2024, we said we could see a glut coming,” which goes beyond graphics chips, Dan said. Hutcheson of TechInsights, who has been tracking chip supply and demand for over 40 years.

© Thomson Reuters 2022