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Nvidia says it’s in a ‘really good place’ for Lovelace gaming-card launch, but at what price?

Nvidia says it's in a 'really good place' for Lovelace gaming-card launch, but at what price?


Nvidia Corp. told Wall Street analysts Tuesday that the launch of its next generation of gaming cards is well positioned, but one analyst questioned whether the higher-than-expected prices would weather a slump in consumer demand.

During the keynote address of Nvidia’s
NVDA,
-1.54%
GPU Technology Conference Tuesday, Chief Executive Jensen Huang unveiled gaming chips using the company’s next-generation “Ada Lovelace” architecture by introducing the flagship RTX 4090 for a suggested retail price of $1,599.

The new gaming chip, which is said to perform up to four times faster than its previous generation RTX 3090 Ti, will be available on Oct. 12. Nvidia’s new chip architecture is named after the 19th-century English mathematician Ada Lovelace, generally considered to be the world’s first computer programmer for her work on Charles Babbage’s theoretical Analytical Engine.

Following the keynote, Huang told analysts that while gaming end markets are soft, they’re not so soft that Nvidia won’t be able to sell excess inventory it has in the channel.

“We’re in a really good place at the moment,” Huang told analysts. “We took specific action, marketing programs to particularly reduce the segment that Ada is going into initially.”

Huang reminded analysts that Lovelace was already delayed, so the company had enough time to clear out inventory channels, and that product ramps go from the top down, so gamers who have been pining for the latest chip will get served first.

To prep for the next generation, however, the company had to take “two quarters of really harsh medicine,” Huang told analysts, referring to several profit warnings during the year as the company hacked away at its revenue forecast and took a $1.22 billion inventory charge prior to the launch.

Huang also introduced the RTX 4080 gaming card, starting at $899, meant to run up to four times faster than the RTX 3080 Ti, along with a 16 GB version starting at $1,199. The CEO said the RTX-3000 series will also remain available for mainstream gamers, with the RTX 3060 starting at $329.

Read: Nvidia sales forecast falls about $1 billion short of expectations, stock falls

Right after the call with Huang, Susquehanna Financial Group analyst Christopher Rolland, who has a positive rating of the stock, lowered his price target to $190 from $200, noting he was “cautious on the near-term GPU market given a slew of headwinds.”

Lovelace succeeds Ampere, which was unveiled in May 2020, about two months into the COVID-19 pandemic, amid strong demand for gaming cards. Nvidia’s stock finished 2020 with a 122% gain, compared with a 51% gain by the PHLX Semiconductor Index
SOX,
-1.49%.
When the Ampere-based gaming cards were introduced in September 2020, the top-of-the-line RTX 3090 listed for $1,499.

Now, Nvidia is launching into an environment when gaming demand is falling during a consumer tech slump, and the stock has dropped 55% year to date, compared with a 36% decline by the SOX index.

Rolland said the prices were “higher than expected,” and called out the $100 hike in the top-end card price.

“We also note 3090’s are currently selling for ~$1,000 in the aftermarket,” Rolland said. “The 4080 will come in 12GB priced at $899 or 16GB at $1,199 vs. 3080’s now selling for ~$800.”

In fact, at last check, an RTX 3090 Ti was going for $1,100 at Best Buy for an advertised $900 price drop.

“We are somewhat concerned about Nvidia raising prices into a collapsing GPU market, but see the long-term significant positives from these products,” Rolland said in his Tuesday note.

Read: Chip stocks could plunge another 25% as ‘we are entering the worst semiconductor downturn in a decade,’ analyst says

Huang feels the higher price is justified, telling analysts that the cutting-edge Lovelace architecture is necessary to support Nvidia’s expansion into Omniverse, its foray into the so-called metaverse.

During the keynote, Huang unveiled that expansion: Nvidia Omniverse Cloud, the company’s first Software-as-a-Service and Infrastructure-as-a-Service product, to design, publish, operate and experience metaverse applications.

The service includes such features as “Omniverse Nucleus Cloud” which provides 3-D designers and teams the ability to make changes and share scenes from nearly anywhere, Nvidia said.

Read: Nvidia’s ‘China Syndrome’: Is the stock melting down?

Early customers of Omniverse Cloud include ad agency WPP
WPP,
+0.07%

WPP,
+1.10%
and Siemens
SIE,
-1.61%,
Nvidia said.

With declining consumer demand, Nvidia’s largest unit recently became its data-center business, with a $3.81 billion quarterly revenue contribution, a gain of 61% year over year, versus a 33% fall in gaming sales to $2.04 billion from a year ago, according to the company’s most recent earnings report.

Nvidia shares finished Tuesday down 1.5% at $131.76, in-line with the SOX index, compared with a 1.1% decline by the S&P 500 index
SPX,
-1.13%.



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