Shares of gaming graphics and crypto-mining semiconductor manufacturer Nvidia (NASDAQ:NVDA) shed more than 3% in early trading this morning before retracing and recapturing some of those losses. As of 10:50 a.m. EDT, Nvidia stock is now down only 1.5% -- but it's still down.
Why is Nvidia down? An article that came out Friday afternoon on gaming website IGN may hold a clue or two.
Quoting CEO Pat Gelsinger of rival chip concern Intel (NASDAQ:INTC), from Intel's Q2 earnings call, IGN notes that the Intel boss predicts chip "shortages [will] bottom out in the second half" and that "it will take another one to two years before the industry is able to completely catch up with demand."
On the one hand, this suggests that in the near term, the pricing power that Nvidia commands from manufacturing a hot product in high demand (computer chips) may begin waning over the next few months -- even if it takes a couple more years to completely evaporate. For investors paying more than 92 times earnings for Nvidia stock today, that may sound worrisome, as it implies high profit margins won't stick around forever.
A second comment from the IGN report is also of concern. With semiconductors in such high demand currently, companies like Nvidia should, in theory, be able to command very high profit margins on their products. But as IGN points out, not all of this margin is in fact accruing to Nvidia and its peers.
"Scalpers," grouses the gaming site, "have ... posed an additional problem" by buying up the scarce chips, consoles, and other tech gear and then reselling them for "hundreds of dollars above their suggested retail price." On the one hand, this trend damages Nvidia's ability to control the prices at which its products sell, even as it threatens to damage the brand by making Nvidia's chips more expensive than they should be.
On the other hand, Nvidia isn't even profiting (as much as it might) from these high prices -- because "scalpers" are taking the windfall profits for themselves. Granted, with operating profit margins pushing 30%, Nvidia still makes very attractive profits from its products regardless.
But in a perfect world devoid of scalpers, Nvidia would probably be earning even more.