# Graphic chip price drop raises questions on whether end of shortage is in sight
Author:  Pal Sinha, Barnali 
Author URL: https://financedigest.com/author/pal-sinha-barnali
Published: 2022-04-25
Category: TECHNOLOGY
Category URL: https://financedigest.com/category/technology
Meta Title: Global Chip Crunch: Will Prices Drop? Intel, Nvidia, AMD
Meta Description: As Intel and Qualcomm report results this week, a drop in graphics chip prices hints at the end of the global chip shortage affecting smartphones, cars, and more.
URL: https://financedigest.com/graphic-chip-price-drop-raises-questions-on-whether-end-of-shortage-is-in-sighthtml

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By Jane Lanhee Lee, Chavi Mehta and Noel Randewich

(Reuters) – A sharp drop in graphic chip prices could presage an unexpectedly quick ending to a global chip crunch that has crippled manufacturing from smartphones to cars, and the issue will be a central one for companies reporting results this week.

As Intel, Qualcomm and others report, investors will weigh how dampened consumer spending from inflation, China’s COVID lockdown and Russia’s invasion of Ukraine balance out supply chain blockages for microchips.

The trigger is a [drop in prices](https://www.financedigest.com/oil-ticks-up-as-u-s-inflation-cools-but-prices-set-for-monthly-drop.html "Oil ticks up as U.S. inflation cools, but prices set for monthly drop") of GPUs, or graphics processing units, which are the brains of gaming machines and are spreading to other uses.

Analysts at Baird recently downgraded GPU [maker Nvidia to “neutral” after prices](https://www.financedigest.com/analysis-to-raise-prices-or-not-consumer-goods-makers-weigh-bets-on-buyer-strength.html "Analysis-To raise prices or not? Consumer goods makers weigh bets on buyer strength") dropped. So far this year, Nvidia [stock is down roughly 31% and rival Advanced Micro Devices has fallen about 37% compared with a roughly 22% drop](https://www.financedigest.com/wall-st-stocks-fall-bond-yields-rise-as-china-drops-quarantine-rule.html "Wall St stocks fall, bond yields rise as China drops quarantine rule") on the Philadelphia SE Semiconductor Index. Both [companies declined](https://www.financedigest.com/payment-security-compliance-declines-only-1-in-3-companies-globally-make-the-grade.html "Payment security compliance declines – only 1 in 3 companies globally make the grade") to comment.

GPU prices are still being sold at a premium, but a smaller one. Susquehanna analyst Christopher Rolland earlier this month said that the markup over manufacturer suggested [retail price](https://www.financedigest.com/france-leans-on-retailers-to-help-consumers-cope-with-food-prices.html "France leans on retailers to help consumers cope with food prices") or MSRP has fallen to 41% from 77%.

Graphics chips and hardware news site 3DCenter, which tracks graphic chip [prices in Europe](https://www.financedigest.com/tesla-expands-discounts-with-price-cuts-in-europe-singapore-israel.html "Tesla expands discounts with price cuts in Europe, Singapore, Israel"), reported that the price of AMD’s Radeon RX6000 and Nvidia’s GeForce RTX30, both used for gaming, dropped steadily to less than 20% above MSRP from 80% at the start of the year.

Still, recent Reuters checks found that Nvidia’s GeForce graphics cards [remained largely out of stock at retailers](https://www.financedigest.com/global-food-makers-retailers-remain-in-crisis-mode.html "Global food makers, retailers remain in crisis mode") like BestBuy and Newegg Commerce.

Baird senior analyst Tristan Gerra told Reuters that if electronic companies that [buy chips expect prices](https://www.financedigest.com/4-for-the-price-of-1-what-you-can-buy-in-the-uks-top-northern-cities-for-the-price-of-a-london-pad.html "4 for the price of 1: What you can buy in the UK’s top northern cities for the price of a London pad") to drop further, they will cut fat inventories, further cutting purchases — and pressuring prices.

“It’s a vicious cycle.” Gerra said.

Demand for GPUs may also drop because crypto currency [Ethereum is expected to change the way](https://www.financedigest.com/5-top-ways-to-buy-ethereum.html "5 Top Ways to Buy Ethereum") it operates late this summer, reducing the demand for graphics chips that power systems used to mine the cryptocurrency today, analysts say.

There is a debate over whether the lower prices will spread throughout the [chip sector](https://www.financedigest.com/japans-factory-output-posts-biggest-fall-in-8-months-on-weak-autos-chips-sectors.html "Japan’s factory output posts biggest fall in 8 months on weak autos, chips sectors").

Softening demand from PC and smartphone markets is also [resulting in price](https://www.financedigest.com/immediate-lift-of-oxford-property-prices-to-result-from-new-direct-high-speed-rail-connection-with-london.html "“Immediate lift” of Oxford property prices to result from new direct high speed rail connection with London") drops of other chips such as leading 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 over-capacity in the second half of this year.

But Bank of America said the weakness in the gaming or crypto currency mining segments could be balanced by strength in data center demand for graphic [chips and has reaffirmed its “buy” rating for Nvidia](https://www.financedigest.com/nvidia-shows-new-research-on-using-ai-to-improve-chip-designs.html "Nvidia shows new research on using AI to improve chip designs").

Meanwhile major chip manufacturers, including Intel and TSMC, plan multibillion-dollar expansions.

Between all the fab investments and then all the bullishness that the shortage wasn’t going to end until 2023, 2024, we said we could see a glut coming,” that extends beyond graphics chips, said TechInsights’ Dan Hutcheson, who has been following chip supply and [demand for over 40 years](https://www.financedigest.com/heathrow-airport-says-return-to-pre-pandemic-demand-years-away.html "Heathrow Airport says return to pre-pandemic demand years away").

(Reporting by Jane Lanhee Lee in Oakland, Calif., Chavi Mehta in Bengaluru, and Noel Randewich; Editing by Peter Henderson and Mark Porter)


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