A combination of soaring demand for PCs and a full-blown cryptocurrency bubble during the first two years of the pandemic led to a severe shortage of graphics cards during that time. Retail prices went haywire, rendering "manufacturer's suggested retail price" (MSRP) a quaint notion. If you could find a top-tier graphics card at retail, you would need to be willing to pay an exorbitant price to get it.
However, shortages almost always give way to gluts, and that's exactly what's happening now in the graphics card market. Demand for PCs has fallen off a cliff, and cryptocurrency is (hopefully) moving back to the fringe. In 2022's fourth quarter, total discrete graphics card shipments plunged 27.4% year over year, according to Jon Peddie Research. Excess channel inventory of last-generation cards hurt demand, although sales at the ultra-high end of the market remained brisk.
NASDAQ: NVDA
Key Data Points
Prices are mostly normal again
Graphics cards aren't quite commodities in the way that memory chips are, but pricing is still partly dictated by supply and demand. It's clear from the recent launch of Nvidia's (NVDA 1.40%) RTX 4070 that the days of shortages and extravagant prices are officially over.
Nvidia kicked off its RTX 4000 series at the high end last year, and it has been slowly filling in the rest of its lineup. The $599 RTX 4070 is the cheapest RTX 4000 graphics card so far, and reviews have been generally positive. The card matches the last generation's RTX 3080 in terms of performance, according to Tom's Hardware, and it provides exceptional ray-tracing performance. The card also performs well with AI-related workloads.
The most exciting thing about this graphics card, at least for gamers, is that it's available at MSRP. In fact, some discounting has already been occurring for overclocked variants that normally command premium prices. There seems to be plenty of inventory, too -- online retailer Newegg will let you buy 20 at a time, if you want.
More competition at lower prices
Advanced Micro Devices (AMD 2.87%) has made progress in offering more competitive products at higher price points over the past few years, but Nvidia still owns the top of the graphics market. As you go lower in price, though, competition heats up. And given that there's no shortage of graphics cards anymore, you can expect more aggressiveness on pricing in the future.
Below $599, gamers have real choices. Prices for some of AMD's last-generation cards were dropped in response to Nvidia's product launch, making the decision about whether to buy Nvidia's latest card more difficult. AMD's RX 6800 now goes for $469, and while it only offers 90% of the RTX 4070's performance, it does so at a much lower price. Alternatively, AMD's RX 6800 XT matches the RTX 4070 in performance for just $539. Nvidia's cards generally offer better ray-tracing performance, but that's not a major consideration for everyone.
Nvidia will eventually roll out RTX 4000 graphics cards at lower price points, and AMD will do the same with its RX 7000 family. Once they get below $400, Intel becomes a competitor. Intel entered the discrete graphics card market last year with its Arc A750 and Arc A770 graphics cards. While initial performance problems related to immature drivers made them a bit of a tough sell, Intel has made vast improvements to its software.
Not just gaming
In its fiscal 2023 fourth quarter, which ended Jan. 29, Nvidia's gaming segment revenue was down around 50% from its all-time peak. Demand should bounce back to some degree, especially as last-generation graphics cards continue to be cleared out of inventories. But a return to pandemic-era sales levels is probably not going to happen any time soon.
Nvidia's data center segment is now by far its biggest, and it has the potential to grow briskly in the coming years, driven by advancements in AI. Graphics cards are well-suited for the processing required to power and train AI models like OpenAI's ChatGPT. As demand for AI services grows, demand for graphics cards should grow along with it.
Nvidia's diversification beyond gaming is helping to blunt the impact of the downturn in demand for gaming graphics cards. Still, Nvidia's overall revenue growth may be sluggish as it faces more competition and a closer balance between supply and demand.
