Shares of semiconductor manufacturer Nvidia (NASDAQ:NVDA) dropped 4.3% as of 11:30 a.m. EDT on Tuesday — and sure, most stocks on the stock market are down today. (The whole S&P 500 is off 1.8%.) But in the case of Nvidia in particular, there may be a good reason why investors are nervous.
The company is a supplier of chips for everything from mining cryptocurrency to performing artificial intelligence tasks to playing video games. It’s that last field of business that may be worrying investors today. As Game Rant reports, “While graphics cards have become near impossible to acquire during the pandemic” (depriving Nvidia of revenue and profits it might otherwise have earned were it able to satisfy all the demand that is out there), its rival Intel (NASDAQ:INTC) “has largely kept its cutting-edge CPUs in supply.”
If that’s the case, and if it’s a trend that continues, then there would appear to be a chance that Intel will gain back market share that it might have lost to Nvidia during the pandemic. As my colleague Jose Najarro noted last month, Nvidia gained 2 percentage points worth of market share sequentially last quarter, but “Intel is expected to release Alchemist, its high-performance GPUs, in the first quarter of 2022.”
Right now, Game Rant reports that Intel’s “11th generation Core processors are ready and waiting for PC gamers to purchase as needed, available at retail prices.” And based on information released by MSI, Game Rant infers that Intel may announce its 12th generation of Core processors, “which include the top-of-the-line Intel i9-12900K,” as early as Oct. 27, and begin selling the chips on Nov. 4.
But is that really such horrible news for Nvidia? While I admit I’m not thrilled with the valuation of Nvidia stock (75.5 times earnings and counting), I’m not sure this news is as bad as investors may be assuming it to be.
On the one hand, yes, copious supply of 11th generation chips, and the imminent arrival of a more powerful 12th generation, would seem to bode well for Intel’s business, and may help the chip giant to steal back some market share it has lost to Nvidia in quarters past. On the other hand, the global semiconductor shortage is still a thing — and it won’t be erased by a month or two of new Intel chip sales.
At worst, I expect that Intel’s introduction of new 12th generation chips will work to moderate supply worries in the chip world, and help to move us toward a world of “normalization and balance” between chip supply and demand by mid-2022, as experts have predicted.
That hardly sounds like a disaster scenario for Nvidia.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.