Nvidia (NVDA 0.96%) has won big amid the graphics card shortage of the past couple of years as booming demand and tight supplies have led to inflated GPU (graphics processing unit) prices and supercharged the company's revenue and earnings growth.

However, it looks like Nvidia is finally losing that catalyst. Let's see what's ailing the graphics card market and how a weak pricing environment could create more headwinds for this tech stock that has already lost significant ground in 2022.

The graphics card market appears to be losing steam

Demand for GPUs has outpaced supply over the past couple of years. Pandemic-driven demand from gamers, upgraded products launched by Nvidia, and demand from cryptocurrency miners have been the key drivers for graphics card sales in recent quarters. At the same time, supply chain bottlenecks caused by the global chip shortage have reduced the availability of graphics cards, which eventually led to inflated prices.

But it now appears that GPU demand may be weakening. According to Jon Peddie Research, GPU shipments (including integrated graphics cards) were down 6.2% in the first quarter of 2022 compared to the final quarter of 2021. However, sales of the discrete GPUs that Nvidia sells were up 1.4% quarter-over-quarter. But Jon Peddie Research notes that multiple headwinds such as Russia's war on Ukraine, lockdowns in China, and inflation could cripple GPU demand this year.

The firm estimates that GPU shipments could increase just 2% to 3% this year. GPU shipments were originally expected to increase 10% in 2022 at the beginning of the year as per another estimate. The bad news is that Nvidia management's comments on the company's May earnings conference call are proof that GPU demand is indeed slowing. Low GPU sales in Russia and China could impact the company's gaming revenue in the current quarter to the tune of $400 million.

At the same time, weak demand for personal computers (PCs) and declining demand from cryptocurrency miners could pose another challenge. IDC estimates that PC shipments could fall 8.2% this year, and that would reduce Nvidia's addressable market. Additionally, a drop in GPU demand from cryptocurrency miners is another reason why Nvidia's sales could take a hit.

Cryptocurrency miners bought a quarter of the discrete graphics cards that were sold in the first half of 2021. But the drop in the prices of cryptocurrencies this year has led miners to put up their GPUs for sale, as low prices mean that mining profitability has diminished. The increased availability of used GPUs at cheaper prices and weak demand have led to higher graphics card inventories at retailers, which is the reason why prices are retreating.

As it turns out, the price of Nvidia's flagship RTX 3090 Ti graphics card has slipped 16% below the manufacturer's suggested retail price (MSRP). This doesn't bode well for Nvidia, as a drop in graphics card prices can hurt the company substantially, as history tells us.

Nvidia stock may be in for more short-term pain

Nvidia stock has lost half its value so far this year. The company has already warned that its gaming business could take a big hit in the current quarter. That's a big red flag, as gaming was Nvidia's second-largest source of revenue last quarter, generating $3.62 billion in revenue.

Nvidia's gaming revenue shot up 31% year-over-year in the first quarter of fiscal 2023 (which ended on May 1, 2022), producing just over 43% of its top line. So the loss of momentum in the video gaming business could spell trouble for Nvidia and weigh on the company's growth. That's something investors will not want to see -- Nvidia is a richly valued stock, so it will have to maintain its high pace of growth to justify its high multiples.

Nvidia is trading at 39 times trailing earnings and 12 times sales. Those numbers are significantly higher than the S&P 500's average earnings multiple of 20, and it sports a price-to-sales ratio of 2.4. So there is a possibility that Nvidia stock will lose more ground this year due to adverse conditions in the gaming GPU space. However, it wouldn't be surprising to see any weakness in the gaming business being only short-term in nature thanks to Nvidia's dominant position in this market and a massive installed base of users in an upgrade window.