NVIDIA (NASDAQ:NVDA) recently launched the GTX 1080, its newest high-end graphics card. NVIDIA claims that a single GTX 1080, which costs about $600 from third-party original equipment manufacturers (OEMs), offers faster performance than two linked GeForce GTX 980s or a single Titan X. Both those setups cost around $1,000. NVIDIA also launched the less beefy GTX 1070 for $380, which is still more powerful than two linked GTX 980s or the Titan X.

NVIDIA's GTX 1080. Image source: NVIDIA.

Those big improvements in price and power were possible thanks to the new 16nm FinFET manufacturing process from TSMC (NYSE:TSM), which is more power efficient than the older 28nm process used in NVIDIA's older cards. It also indicates that NVIDIA plans to aggressively widen its moat against AMD's (NASDAQ:AMD) lower-priced cards.

Meanwhile, AMD is expected to unveil its latest GPU, Polaris, at Computex 2016 in Taipei next week. Those cards will come in three versions -- the Vega 10, Polaris 10, and Polaris 11 -- which will compete against NVIDIA's GTX 1070 and 1080 cards. AMD hasn't announced the official prices yet, but it has previously stated that the Polaris GPUs should cost less than $349. The Polaris GPUs were built on the 14nm FinNET process, which could be more power efficient than the 16nm one used by NVIDIA. Both NVIDIA and AMD claim that their cards are optimized for virtual reality games.

AMD has a lot to prove

NVIDIA controlled 77% of the add-in graphics board market in the first quarter of 2016, according to research firm JPR, while AMD controlled just 23%. NVIDIA's GeForce generally has a higher level of brand recognition than AMD's Radeon, NVIDIA usually pursues architecture upgrades more aggressively, and it launches software suites and updates more frequently.

To keep up, AMD sometimes sold its cards at lower prices and boosted the power draw of its GPUs instead of upgrading the architecture -- which produced faster but less power-efficient cards. That strategy wasn't ideal for long-term growth. Last quarter, AMD's computing and graphics revenue (which includes its CPUs and GPUs) fell 14% annually to $460 million. The unit's operating loss narrowed slightly, from $75 million a year earlier to $70 million.

Image source: AMD.

AMD's development of the 14nm Polaris GPUs indicates that it doesn't plan to tread water anymore -- it wants to challenge NVIDIA's new flagship cards head-on. During last quarter's conference call (as transcribed by Thomson Reuters), CEO Lisa Su told investors that the Polaris "delivers double the performance per watt of our current mainstream offerings, which we believe provides us with significant opportunities to gain share."

NVIDIA just needs to hold the fort

NVIDIA's launch of the GTX 1080 and GTX 1070 indicates that it doesn't want AMD to grow its market share. By comparing the two new cards against the top-tier dual GTX 960s and Titan X setups, NVIDIA can likely attract a market of mid-range PC gamers who previously wouldn't have considered buying either $1,000 setup.

NVIDIA's GPU business has been posting solid growth over the past few quarters. Its total GPU revenue rose 15% annually to $1.08 billion last quarter, with gaming platform revenue improving 17%, to $687 million. That boosted NVIDIA's total revenue 13%, to $1.3 billion last quarter.

Streamlined vs. scrambled

NVIDIA's biggest advantage over AMD is that it has a more streamlined business model, which consists of a core GPU business and new high-growth chips for connected cars and data centers. That's why analysts expect NVIDIA's sales and earnings to respectively improve 11% and 44% this year.

AMD's GPU business is lumped together with its sluggish CPU business, which has been marginalized by market leader Intel. AMD is trying to achieve growth in GPUs with Polaris, bounce back in CPUs with Zen, blend CPUs with GPUs in its APUs, and remain in gaming consoles with its embedded chips. That's a lot of stuff to juggle as the company's bottom line remains deep in the red.

Which chipmaker will win the next-gen GPU war?

We won't have a clear picture of how NVIDIA's newest GPUs will fare against AMD's until both cards are properly benchmarked against each other. But for now, I think NVIDIA's bigger market share and brand recognition, simpler business model, and deeper pockets for marketing blitzes could make it tough for AMD to challenge NVIDIA, even though the underdog's Polaris GPUs could be more technologically impressive.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.