Jane Lanhee Lee and Chavi Mehta, by Noel Randewich

(Reuters] – Companies will report results this week on the global chip crunch, which has seen a sharp decline in prices for graphic chips.

As Intel (NASDAQ:), Qualcomm (NASDAQ:) and others report, investors will weigh how dampened consumer spending from inflation, China’s COVID lockdown and Russia’s invasion of Ukraine balance out supply chain blockages for microchips.

A drop in the prices of GPUs (or graphics processing units), is what triggered this. These are the brains behind gaming machines, and they are expanding to other applications.

Analysts at Baird recently downgraded GPU maker Nvidia (NASDAQ:) to “neutral” after prices dropped. Nvidia stock dropped by 31% this year while Advanced Micro Devices (NASDAQ;) fell 37%. That compares with the 22% drop in Philadelphia SE Semiconductor Index. Both companies did not comment.

While GPU prices remain high, they are selling at a lower premium. Christopher Rolland of Susquehanna stated that markups over the manufacturer-suggested retail price (MSRP) have fallen to 41%, from 77% earlier this month.

Graphics chips and hardware news site 3DCenter, which tracks graphic chip prices in Europe, reported that the price of AMD’s Radeon RX6000 and Nvidia’s GeForce RTX30, both used for gaming, dropped steadily to less than 20% above MSRP from 80% at the start of the year.

Still, recent Reuters checks found that Nvidia’s GeForce graphics cards remained largely out of stock at retailers like BestBuy and Newegg Commerce.

Tristan Gerra from Baird, a senior analyst, told Reuters, that if electronics companies buy chips anticipate prices dropping further they will cut their inventories and further reduce purchases.

“It’s a vicious cycle.” Gerra said.

Analysts predict that the crypto currency will change how it works late in the summer and could reduce the demand for GPUs. This may lead to a drop in GPU sales.

It is still uncertain if the higher prices will be spread across the entire chip industry.

According to Kinngai Chen, Summit Insights Group analyst, the price of chips like leading edge processors such as CPUs, and memory chips is falling. He expects that older chips will face excess supply in the second half this year due to softening demand in both the smartphone and PC markets.

But Bank of America (NYSE:) said the weakness in the gaming or crypto currency mining segments could be balanced by strength in data center demand for graphic chips and has reaffirmed its “buy” rating for Nvidia.

Several major chip companies, such as Intel and TSMC are planning multibillion dollar expansions.

“Between all the fab investments and then all the bullishness that the shortage wasn’t going to end until 2023, 2024, we said we could see a glut coming,” that extends beyond graphics chips, said TechInsights’ Dan Hutcheson, who has been following chip supply and demand for over 40 years.