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Ethereum Merge signals end of GPU shortage, but not necessarily high prices

What a mine field

Analysis Gamers may not have to fight off cryptocurrency miners or pay scalped prices to get their hands on a GPU now, especially if they're willing to pick up an Nvidia 30-series or AMD 6000-series card

Will that mean prices drop as far as they have risen, though?

Ethereum’s move to proof of stake this month – an overhaul dubbed the Merge – ended the need for people to mine the cryptocurrency and those based on it using powerful number-crunching graphics processors and similar accelerators. Instead investors now stake their Ether to facilitate transactions and keep the blockchain secure. For that and other reasons, the outsized demand we've come to know for GPUs has rapidly deflated. The electronics are easier to get hold of now as supply catches up with falling demand.

The glut of graphics cards is plain to see in packed display cases at brick'n'mortar retailers, with high-end AMD and Nvidia gear now selling for well below their MSRPs. Without much effort, you can now find Nvidia’s RTX 3090 TI, a card that launched at an MSRP of $1,999 barely six months ago, or AMD’s current flagship, the RX 6950 XT, on sale for less than $1,100.

More modest cards such as the 3060 TI or RX 6700 XT are now readily available at close to their MSRPs, something that in many cases we didn’t even see at launch thanks to the almost immediate price hikes driven by a GPU-starved market. Don’t forget, not long after its debut, the 3060 was selling for more than twice its MSRP, if you could find one in stock.

“I think that the reality is prices are still fairly high compared to what they’ve been historically, but overall I think compared to the last two years it’s much better,” Moor Insights and Strategy analyst Anshel Sag told The Register.

The crypto mining collapse

Early this summer, amid economic anxiety and other effects, cryptocurrencies began collapsing, with Bitcoin falling from more than $48,000 in March to under $19,000 in June. Other popular coins that required proof-of-work mining, particularly Ethereum, saw similar collapses.

But when Nvidia booked a $1.32 billion inventory charge in early August, it wasn’t crypto-coins that CEO Jensen Huang blamed but slumping PC sales.

"Our gaming product sell-through projections declined significantly as the quarter progressed," he said at the time. “As we expect the macroeconomic conditions affecting sell-through to continue, we took actions with our gaming partners to adjust channel prices and inventory.”

Similarly, when AMD reported its second-quarter earnings in August, executives disclosed declining demand for discrete GPUs and warned that PC and gaming sales were likely to take a hit in Q3 due to soft demand.

But while both companies bemoaned declining PC sales, Sag isn’t seeing it, at least not among computer game fans. “I’m not seeing much demand pull back from gamers. If anything, I would say lots of gamers are more interested in building PCs now than they have been in the last two years,” he told us.

Instead, Sag suspects Nvidia and AMD downplayed the impact that cryptocurrencies had on their sales. “Crypto has such an insatiable demand for GPUs that the entire channel evaporates almost instantaneously,” he said. “When you have that kind of experience, everybody just feels like they’re printing money.”

But the risk is making a bad bet on when the inevitable crash will come. Historically, vendors have been caught off guard by these periodic crashes, but this time they should have seen it coming, Sag argued.

That’s because it wasn’t just another crash looming. It was Ethereum’s transition from proof of work — which is what GPUs are used for — to proof of stake.

“It’s a double whammy. It’s that the price of crypto has fall so much that it’s no longer economical to produce on GPUs, and then the most popular way and most profitable way to mine also disappeared overnight,” Sag said.

Good for gamers?

The crypto collapse may have hurt AMD and Nvidia’s partners, but Sag ultimately sees the situation as a “net positive” for gamers. And while pricing and availability on existing GPUs may be improving, not all cards are getting cheaper.

Nvidia’s shiny new GeForce RTX 40-series cards have been met with a mixture of anticipation over their bold performance claims and a general sense of disappointment with regard to their price tags. The cards start at $899 and, for now, top out at $1,599. And according to Sag, Nvidia has few motivations to reduce GPU pricing in future cards moving forward.

“Nvidia is positioning the GeForce line in a way that Apple has done in the sense that the majority of what they sell is at the premium tier,” he said. “They’re not trying to decrease their price necessarily because they see themselves as a premium product in market.”

For Nvidia, this may not be a bad play, he said, as the people who can afford to spend a thousand-plus dollars on a GPU are the least likely to feel the brunt of an economic downturn. “That’s why you see a lot of luxury brands continuing to do well even when other brands are saying, ‘we’re seeing decreased sales.’”

This focus on the upper-end of the gaming GPU market could also be an opportunity for AMD to grow its market share. The chip designer is expected to reveal its next RDNA-based graphics cards later this fall.

And while the Ryzen giant hasn’t offered any hints as to pricing, Sag argues AMD is in a position to “take stock of what's going on with Nvidia and the overall GPU market and make some decisions that will not just benefit consumers but also potentially benefit AMD’s market share."

As to whether or not that means lower prices for AMD cards remains to be seen. ®

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