Nvidia Should be Careful on Pricing
Nvidia (NASDAQ:NVDA) should be more careful about how it prices its GPUs given increased competition from AMD (NYSE:AMD). Besides AMD, Nvidia also competes with Intel (NASDAQ:INTC) in the graphic processors business.
Our price estimate for Nvidia’s stock stands at $21.29, a premium of about 10% to the stock’s current market price.
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The Average Pricing Difference
Let’s take a look at discrete notebook GPUs. This segment constitutes nearly 6% to AMD’s stock value by our estimates, and a little over 5% to Nvidia’s stock value. We estimate that average discrete notebook GPU pricing for Nvidia stood at around $21 in 2010, a little above our estimate of $19 for AMD. Average pricing, we should note, is well below that of high end GPUs (that tend to attract the most media attention) due to a higher share of entry level and basic GPUs in the market.
This data indicates that Nvidia commands a premium over AMD for its GPU products. However, it might not be in the company’s best interest to continue to do so. AMD has gotten more and more competitive in this arena and gained significant market share in the last few years at the expense of Nvidia.
Recent Launch and Competition
Nvidia recently launched its GeForce GTX 590 while competitor AMD launched its HD Radeon 6990. Both have been making big claims on GPU speed and marketing these products to gamers. As usual, AMD’s product is priced lower. [1]
Interestingly, Nvidia actually wanted a higher price initially compared to the price it finally settled on. [1] The decision to go with a lower price seems to suggest that AMD’s product is extremely competitive with Nvidia’s offering. Looks like Nvidia may no longer be able to hold a pricing premium over the long-term, especially if AMD gets more aggressive.
You can drag the trend line in the interactive chart above to see how lower average discrete notebook GPU pricing can affect Nvidia’s stock value.
See our full analysis for Nvidia here