What happened
On a day chock-full of semiconductor news, shares of Nvidia (NVDA 3.65%) took another turn for the worse. As fellow chip giants Intel (INTC -0.38%) and Seagate (STX 1.58%) reported earnings numbers that sent their stocks rushing off in opposite directions, Nvidia stayed more or less mum.
Result: As of 12:30 p.m. ET, Nvidia stock is down 2.9%.
Image source: Getty Images.
So what
What did Intel and Seagate say that might have produced such pessimism in Nvidia investors today?
Well, after surveying analysts' reactions to the other chip companies' reports (as reported by TheFly.com), the primary concern seems to be this:
In Intel's report, CEO Pat Gelsinger opined that he's seeing "incremental improvements" in semiconductor supply globally, and that this has the potential to start reducing the critical deficit in chip supplies sooner than expected. Gelsinger still thinks the shortage could linger on into 2024, but "quarter by quarter," supplies should be improving.
This is, of course, good news for chip customers and for the global economy in general, but it still has the potential to "chip" away (sorry, I couldn't resist) at semiconductor companies' pricing power over time. What's more, as analysts at Northland commented in a note this morning, Intel itself may be "under-promising" on its own ability to increase chip production in 2022, and thus accelerating the erosion in chipmakers' profits.
Now what
A second concern could be Intel's guidance on gross profit margins in the coming first quarter of 2022, which calls for a steep erosion in margin -- down nearly 5 full percentage points to 49%.
Granted, such a decline could be no more than a consequence of all the costs Intel is incurring in building out production capacity to meet demand. But lower gross margins might also imply that Intel is cutting prices in a way that could force Nvidia to cut prices to match, lest it lose market share to Intel. Given that Intel has made regaining market share a priority in its turnaround, it's not unthinkable that cutting prices in order to grab back share might be part of the company's strategy.
If forced to guess what precisely has Nvidia investors feeling nervous today, the prospects of a price war breaking out at the same time as semiconductor supplies start expanding would have to be high on my list.
