Reuters: Falling graphics card prices raise questions about whether chip shortage is about to end

A sharp drop in graphics card prices could herald a quick end to the global chip crisis, an issue that will be a central question for companies reporting earnings this week, Reuters reported.

As Intel, Qualcomm and other companies report, investors will weigh the impact of inflation on consumer spending, the outbreak in China and the conflict between Russia and Ukraine on the microchip supply chain.

Recently, Baird analysts downgraded GPU maker Nvidia to "neutral" after GPU prices fell. Nvidia's stock price has fallen about 31% this year, and its rival AMD's stock price has fallen about 37%, while the Philadelphia SE Semiconductor Index has fallen about 22%. Both companies declined to comment.

GPUs are still selling at a premium, but at a smaller one. Markups on manufacturer suggested retail prices, or MSRPs, have fallen to 41% from 77%, Susquehanna analyst Christopher Rolland said earlier this month.

3DCenter reports that AMD's Radeon RX6000 and Nvidia's GeForce RTX30 (both graphics cards are used for gaming) are priced 80% above their suggested retail prices, while earlier this year the prices of these two graphics cards were less than 20% above their suggested retail prices.

However, a recent Reuters investigation found that Nvidia's GeForce graphics cards are still mostly out of stock at retailers such as Best Buy and Newegg Commerce.

Tristan Gerra, senior analyst at Baird, told Reuters that if electronics companies that buy chips expect prices to fall further, they will cut back on large inventories and further reduce purchases, putting pressure on prices.

“It’s a vicious cycle,” Gerra said. Analysts say demand for graphics processors could also fall because the Ethereum cryptocurrency is expected to change the way it operates later this summer, which would reduce the need for graphics chips in systems currently used to mine the cryptocurrency.

There is debate over whether the low prices will spread to the entire chip industry. Weak demand in the PC and smartphone markets has also led to price declines for other chips, including leading-edge processors such as CPUs and some memory chips, according to Summit Insights Group analyst Kingai Chan. He expects some other chips produced for older models to face overcapacity in the second half of this year.

“Between all the chip fab investments and all the bullish sentiment, we don’t think the shortages will end until 2023 or 2024,” said Dan Hutcheson of TechInsights. The oversupply will extend beyond graphics chips.