The current sharp drop in graphic processing units (GPU) could signal an unexpected ending to a global chip crunch.
Earlier this month, analysts said the markup over the manufacturer’s suggested retail price (MSRP) has skidded to 41.00% from 77.00%.
Then, tech news site 3DCenter, which tracks European graphic chip prices, also reported a significant decline in chip costs.
Accordingly, AMD’s Radeon RX6000 and Nvidia’s GeForce RTX30 prices, both used for gaming, dwindled steadily to less than 20.00%. This rate notably edged down from the 80.00% increase at the start of the year.
However, GeForce graphics cards remained mainly out of stock at retailers like BestBuy and Newegg Commerce. Nevertheless, the price decline of GPU could spread a positive trend to other uses.
Experts explained that if electronic companies expect prices to drop further, they will reduce fat inventories. This potential move would further cut purchases and pressure costs. Moreover, analysts noted that the demand for GPU may also pare in the near term.
The forecasted downdraft came as Ethereum will change its operations this summer. The adjustment will weigh the demand for graphic chips that power the systems used to mine the second-leading crypto. Then, there is also a debate over whether the lower prices will spread throughout the chip sector.
The worldwide semiconductor crunch has crippled manufacturing from smartphones to cars in the past years. This issue will be a central factor for companies reporting results this week. For instance, leading semiconductor companies Intel and Qualcomm are the first to release their quarterly earnings.
Investors will weigh how the dampened consumer spending from inflation will balance out the supply chain blockages for microchips. They also kept an eye close on the impact of China’s COVID lockdown and Russia’s invasion of Ukraine.
Soft PC and smartphone demand drags GPU prices
Furthermore, softening demand from PC and smartphone markets also causes price drops for GPU and other chips.
Accordingly, analysts expect the supply of processors will face over-capacity in the second half of this year.
In line with this, Baird recently downgraded Nvidia to neutral after prices dropped. So far this year, the stock of the GPU maker’s waned 33.93%, and rival Advanced Micro Devices has fallen about 39.64%.
Regardless, Bank of America said that the strength in the data center could offset the weakness in crypto mining. Thus, the investment bank reaffirmed its buy rating for Nvidia.
Meanwhile, major chip manufacturers, including Intel and TSMC, plan multibillion-dollar expansions.