By Tae Kim. Barron's online
Jan. 11, 2023

"Angry Gamers. Hi everyone. In September, Nvidia NVDA –0.50% CEO Jensen Huang declared that “Moore’s Law is dead.” The performance of the chip maker’s latest graphics card suggests that may be true—at least for Nvidia.

Last week, Nvidia (ticker: NVDA) launched the third model in its current generation ‘Ada Lovelace’ product lineup, named the RTX 4070 Ti. It retails for $799.

The reception from the gaming community has been very negative. “I don’t think I’ve ever in my career seen a company get steamrolled in reviews as unanimously and gruesomely as what just happened to Nvidia,” GamersNexus’ Stephen Burke posted on Twitter.

Burke called the RTX 4070 Ti a “rip off,” noting that Nvidia’s claims of three times the performance of the prior generation was misleading. Other popular YouTube channels—including JayzTwoCents and Paul’s Hardware—had similar unfavorable sentiments.

After reviewing the RTX 4070 Ti’s gaming benchmarks, I agree with them. Nvidia’s marketing claims are based on the company’s DLSS technology, but that’s only available on a subset of games and can have noticeable visual defects. For standard native rendering, the RTX 4070 TI is roughly 20% faster than the two-year old RTX 3080—for a 14% higher price. That’s a negligible increase in performance and gives current Nvidia owners little reason to upgrade. For reference, the RTX 3080 was nearly 70% faster than its predecessor—and it sold for the same price.

You can see why the reviewers are up in arms. It seems like gamers are going on a buying strike too. Usually, when new Nvidia cards are released, the initial shipment sells out instantly. But nearly one week after the RTX 4070 Ti launched, the cards are widely available at major electronic websites, and there are large piles of inventory at physical retailers. Those are not good signs.

Nvidia didn’t respond to a request for comment about the negative reception to the RTX 4070 Ti and the impact on the company’s future results. In the latest reported quarter, gaming cards accounted for 27% of Nvidia’s overall revenue— down from 45% the prior year.

For a couple of years starting in early 2020, Nvidia’s graphics cards benefited from unprecedented demand as cryptocurrency miners clamored for the cards, while gamers stuck at home during the pandemic paid for upgrades. Those tailwinds disappeared during the middle of last year. But Nvidia still seems to be operating off its pandemic playbook of high prices.

The competitive dynamic is getting more challenging too. Sony (SONY) has been ramping up production of the PlayStation 5 now that its chip shortages have eased. The digital edition PS5 console, at just $399, is becoming a more attractive proposition for gamers, given the current high prices for PC graphics cards.

The reception for the three models Nvidia has released in its current generation doesn’t bode well for the overall two-year product cycle. While the high-end $1,599 RTX 4090 has sold well since it launched in October, gamers have been far less buoyant over the $1,199 RTX 4080 and now the RTX 4070 Ti. Given the lack of price-to-performance gains for the latter two models, the rest of the coming ‘Ada Lovelace’ lineup may underperform too.

Last April, Barron’s cautioned investors about Nvidia’s fundamentals, citing rising inventories at retailers and unsustainable pricing. During the ensuing months, the chip company slashed its outlook several times, blaming a sharp slowdown in demand.

It’s been a difficult run for Nvidia investors. The chip stock is down about 45% over the last 12 months.

The slide may continue for much of 2023. Wall Street currently expects the rollout of Nvidia’s ‘Ada Lovelace’ products to spark a turnaround for sales. But, given the poor reaction to the latest products, that doesn’t seem likely."