Forget AMD: Here's Why NVIDIA Will Continue to Dominate the PC Gaming Market

Shares of graphics chip company NVIDIA (NASDAQ: NVDA  ) have soared over the past year, rising about 50%, with sales of the company's high-end gaming GPUs making up for a weak PC market. The rise of mobile gaming and the new generation of game consoles haven't hurt the PC gaming market at all, and NVIDIA will continue to benefit from strong global demand for PC gaming products. While competition from AMD (NASDAQ: AMD  ) is a threat, a lack of focus from the troubled competitor gives NVIDIA an important advantage. 

NVIDIA's edge in PC gaming
The gaming market generates revenue in excess of $100 billion per year, spread across game consoles, PCs, and mobile devices. While the launches last year of the Xbox One and PlayStation 4 created excitement around console gaming, the PC gaming market is actually larger than the console-gaming market. Much of this is thanks to the Asia Pacific region, where PC gaming is a nearly $15 billion industry, compared to just $3.9 billion in North America.

NVIDIA has benefited from the growing PC gaming market, with revenue from its GeForce gaming GPUs rising by 15% in fiscal 2014. This growth came during a continuing decline in the PC market as a whole, with NVIDIA specializing in one of the few areas that have remained immune to the PC sales slump. NVIDIA's share of the discrete GPU market has also been on the rise, with the company now commanding around 65% of the market. NVIDIA was nearly even with rival AMD back in 2010 in terms of market share, but the gap has been widening each year.

There are two reasons why NVIDIA has managed to pull so far ahead of AMD. First, while NVIDIA focuses solely on graphics and visual computing, AMD does CPUs and GPUs, as well as semi-custom deals like the game consoles. With AMD's focus spread between different businesses, it's no wonder that the more specialized NVIDIA has become the market leader.

Second, NVIDIA now spends more on research and development than AMD. In the last fiscal year, NVIDIA spent $1.336 billion on R&D compared to AMD's $1.201 billion, and the trends for the two companies couldn't be more different.

Source: Morningstar, Author's Calculations

A company that continually slashes R&D spending is a company that falls behind its competitors, and with AMD attempting to compete in multiple markets, NVIDIA's lead may soon become insurmountable.

Going forward, there is one development that should help NVIDIA further grow its gaming GPU revenue in 2014 and beyond. The first GPUs built on the company's Maxwell architecture have been announced, and the focus on energy efficiency puts NVIDIA in position to dominate two portions of the PC gaming market.

The GTX 750 line of entry-level desktop GPUs was announced in February, and the cards manage to cut power consumption in half while doubling performance compared to NVIDIA's entry-level GPUs from three years ago. That's a quadrupling of performance per watt in just three years, and the lower power consumption makes these cards perfect for small form-factor PCs, such as the upcoming steam machines.

NVIDIA also expects the gaming notebook market to grow rapidly in 2014, and its new line of Maxwell-based notebook GPUs allow gaming notebooks to be thinner and lighter than ever before while achieving an acceptable battery life due to Maxwell's energy-efficiency improvements. NVIDIA's lower-end 840M notebook GPU triples the performance of Intel's integrated graphics while using nearly the same amount of power, making NVIDIA's discrete graphics cards a real option for midrange gaming notebooks.

The bottom line
With AMD slashing R&D spending while splitting its attention between different areas, NVIDIA has the opportunity to cement its status as the leading graphics chip company. The PC gaming market is growing despite weak PC sales, and NVIDIA's dominant market share is no accident.

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Comments from our Foolish Readers

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  • Report this Comment On April 08, 2014, at 5:14 PM, RCM0102 wrote:

    Is AMD really slashing their R&D or have they been able to arrange for their partners to share in that expense with them?

  • Report this Comment On April 08, 2014, at 5:19 PM, RCM0102 wrote:

    If nVidia dominates the gaming sector why is it AMD has the PlayStation, Wii and XBox exclusively?

    I must defer to you on the techie stuff but I question your euphoria as common sense suggests to me that the guy you assert is losing just WON all three platforms and while AMD R&D spending has declined their relationships have flourished.

  • Report this Comment On April 08, 2014, at 5:26 PM, RCM0102 wrote:

    The two Maxwell GPUs released by NVIDIA, the GTX 750 and the GTX 750 Ti, are mid-range desktop cards priced at $119 and $149, respectively. In terms of performance, these cards don't offer much of a boost compared to NVIDIA's Kepler-based cards launched at the same price, and in fact AMD's cards still outperform NVIDIA at this price range.

    Commentary provided by you in an earlier post.

  • Report this Comment On April 09, 2014, at 8:49 PM, Nimmer wrote:

    There's one problem with AMD that all these expert critics keep failing to consider. They NEVER ask the gamers. NVIDIA also has a consistent problem with software, especially with Dell machines. This has now persisted for twelve years (personal experience). The AMDs can consistently be overclocked further with correct cooling and perform more reliably when overclocked. That's according to gamers, not experts. And there is at least one motherboard that is actually made for AMD vice Intel CPUs. AMD is currently struggling because Intel matched their bid of several years managing to multicore before Intel...and because Intel has more massive resources. Intel is AMD's competitor. And it wouldn't take much of a bet to say that Asus would split with the GPU part of the business if AMD were willing.

  • Report this Comment On April 10, 2014, at 9:34 AM, Amdisgod wrote:

    AMD already did the R&D, created industry changing technology and has begun eroding NVDA market share. NVDA is trying to come up with proprietary tech that they hope will give them and edge. So far NVDA is failed over and over as the adoption of thier technology is limited to the few wall street darling collusion partners.

    NVDA is like Intel, trying to strong arm their way into the future. Consumers have had enough.

    Game over.

  • Report this Comment On April 14, 2014, at 1:42 PM, Tgirgis wrote:

    As a huge AMD fan I have to agree with this article. I'm not happy about Rory Read's plan and I make no attempts to pretend I am.

    The idea that a market with only 1 major competitor (intel) is just too crowded to be profitable is rediculous, AMD, with their 64-bit chip, was ahead of intel until 2006, in 2006 AMD acquired ATI but the acquisition was handled poorly, there was poor team cohesion when working on CPUs and APUs as each "team" as the employees called it (red team = ati guys, green team = AMD guys) felt threatened by the other and thus only worked towards what was in their team's best interest.

    This is the primary reason they were unable to note flaws in major releases such as the bulldozer architecture, but there were other factors that effected them as well. One of these factors is that the company stretched itself very thin, getting involved in everything from ram, to storage, to communications technologies.

    Another factor is that the company accumulated heavy debt building and maintaining their fab facilities, and as the overstretched company began to suffer from its botched acquisition, chips sold less, leading to depreciated inventory,and thus the expensive fab facilities were actually not beneficial to the company. Rather than close down fabs, they made a great move to go fabless by spinning the fabs off as their own company - GlobalFoundries.The big mistake they made though, under their last CEO (who lasted 3 years) they sold the Imageon mobile graphics line to qualcomm, who used it to create the profitable Snapdragon chip.

    So, now that the ATI acquisition is finally properly completed and the fabs are gone, Rory Read decides his company isn't capable of competing again, and somehow manages to lose the only guy who made them any money (the guy who got them the Xbox One & PS4 deals) to their number 1 competitor - NVIDIA.

    Then he decides to focus on the two least profitable markets - Servers (profitable, but not as much as consumers) and PC's in developing nations.

    This is the problem:

    1. Rory Read states that the company will focus more on long term chips (server chips) which will reduce the need to produce a new chip every 6-12 months, this is nonsense, because long term means less frequent upgrades, this market can be profitable but not with AMD's low margin strategy (btw I strongly support the low margin strategy) because low margins requires high volume, and when people aren't upgrading as fast, there is little volume.

    2. Everyday computing PCs are falling GLOBALLY at a very similar rate, and mobile tablet is picking up just as fast in developing nations as it is in the U.S. so I'm sure I'm not alone when I say he has no idea what he's doing in this market

    3. There is no capitalization on the momentum of getting the Xbox One and PS4 deals, theyre not even going to make an APU for enthusiast so that brand momentum of AMD being the ultimate in gaming, creative, and multimedia is pretty much squandered. Furthermore, Read has split the company's message, where as on the CPU side they economical solutions for everyday computing in developing nations and business servers only, on the GPU side they're going fulls team ahead to target the enthusiast market.

    So, while AMD is now fully capable of creating enthusiast chips that can atleast compete with intel more than the FX did, and also has the ability to create enthusiast APUs, and can re-create the imageon mobile graphics line, Read is choosing instead to spout out nonsensical rhetoric that makes him seem "smart" but in reality, a company getting outspent on R&D should have never even considered cutting R&D.

  • Report this Comment On April 14, 2014, at 2:02 PM, Tgirgis wrote:

    Let me specify a bit here on my post above (idk how to edit posts on this site)

    I'm not opposed to AMD going into servers (i am with this nonsense about developing nation PCs though)

    I'm not opposed to some of the moves AMD has done to raise capital and reduce costs (like cutting the data centers down)

    I'm not opposed to what their graphics products group is doing

    What I am opposed to is them cutting the R&D budget despite having numerous other options (they have about 15-20 offices that don't need to exist, they have an extremely oversized labor force, etc.) as well as this nonsense to refuse to compete for the enthusiast market (gamers, video encoders, graphics designers, and even work stations). It's like if toyota said "Ok, we make cars, but we're only ever going to make 4-door sedans from now on, we're not going to compete in any other type - no SUVs, no coupes, no pick-up trucks, nothing."

    Additionally, their decision to not go back into mobile graphics is unbelievable.

    All this while they have enormous momentum (from a marketing perspective) to push their brand message at enthusiasts, and while their GPU line already IS pushing their message towards enthusiasts.

  • Report this Comment On April 15, 2014, at 11:53 AM, H2323 wrote:


    -Nvidia's R&D is heavily loaded into tegra (ARM SoC) Intels R&D heavily into Fabs (14nm and the major issues below)

    -AMD is sharing the cost for custom chips, the R&D cut in general is temporary......If they can execute there growth plan...seems to be working.

    -APU's are the future, they have to develop them now, they can't play catch up again they know that.

    -PCI-e is going to die, not far out. Integrated high powered graphics with access to DDR5 mem or better is the solution, more efficient and in the LONG term it will have better performance.

    -AMD's road map and leaks clearly show a competent line of dedicated GPU's just waiting for 20nm and smaller, same goes for Nvidia, the graphics card dance will continue. AMD's mobile strat will be APU, much better idea. They will compete in graphics cards till they die while transitioning to integrated along the way.

    -AMD CPU's suffer from a PERCEIVED performance disadvantage. Real world performance is good, multi-core module design's strength is multi-tasking.

    -The power efficiency problems for AMD are overstated. People, (Intel Nvidia) use it as an attack with few examples. All recent releases including Kavari, Hawaii, Steamroller, Puma, Mullins fall within modern competitive power usage bases. Who cares if niche products are ridiculously inefficient, they're small quantity, effect the bottom line very little.

    -There has to be two....Consumers need two dominant players, it's good for us. The question is not what will happen to AMD, they have x86, everyone has ARM, and they have along with Nvidia the leading GPU tech in the world. As we move away from dedicated graphics what happens to Nvidia, that is the real question.

  • Report this Comment On December 26, 2014, at 7:51 PM, Khaoimon wrote:

    "As we move away from dedicated graphics what happens to Nvidia, that is the real question."

    This is an interesting point, but I think we are either really far off, or it isn't valid. Mainly because of resolution changes. With 4k out and on its way to becoming better and cheaper the power required to render graphics at that quality is already a strain on the most powerful cards. I haven't paid attention very recently but I'm pretty sure a single powerful card cannot run a game maxed out at 4k. That is before considering running three monitors like many do. With that, considering enthusiast sales are 10% of the market but 2/3 of the revenue for non-integrated graphics cards I think it is fair to say the market will still be there for some time.

    Then you have to consider that graphics are getting better, not just resolutions requiring more power, soon decent VR is coming which will also require immense processing power.

    I don't see integrated technology getting small enough to integrate the type of power we need consistently as the industry evolves in the near future. Resolutions will get higher and higher, graphics better and better, physics calculations more intense.

    If we were considering static needs and technology getting better I would agree but we will fight to make things bigger, better and more realistic. When quality reaches the point that we can't make something look more realistic then I think we will reach the point that integrated graphics catch up.

  • Report this Comment On July 18, 2015, at 4:18 PM, nshidia wrote:

    wow this lady is a complete idiot. nuff said. hail satan

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