The PC gaming hardware market exceeded $30 billion in revenue in 2016, up nearly 22% from the previous year, according to Jon Peddie Research. This growth in gaming hardware was surprising, as the industry was not expected to cross the $30 billion threshold until 2018.

Both NVIDIA (NVDA 2.63%) and Advanced Micro Devices (AMD -2.30%) took advantage of this opportunity by ramping up their sales. The shift of the gaming hardware market toward mid-range and high-end graphics cards, along with an increase in their average selling prices, was a key catalyst for both these companies.

Mid-range gaming systems, for example, had 35% market share last year, compared to 31% in 2015. Meanwhile, high-end systems accounted for 43% of the market, while entry-level systems dropped to 22%. NVIDIA and AMD each launched new GPUs to take advantage of the growth, but the latter's focus on the mid-range segment gave it significant headway.

AMD is coming off a strong comeback . . .

AMD offered the best GPUs for gamers on a budget in 2016, as its cards delivered excellent performance. This led to an increase in its market share in discrete GPUs. The last available data from Jon Peddie Research indicates that AMD had 29.5% of the discrete GPU market at the end of 2016 with NVIDIA commanding the remainder. By comparison, NVIDIA had over 78% of the market just a year ago, but AMD clawed back substantial share during the period.

As the gaming hardware market will clock annual growth of 6% through 2019, this sets the stage for the rivalry between the two industry leaders to continue.

. . .  and taking aim at NVIDIA in the high-end market

Following its gains in mid-range GPUs, AMD is now going after the high-end segment as well. The company will release its Polaris successor -- the Vega -- in the second quarter of 2017 in a bid to shake the dominance of NVIDIA's GTX 1080.

An AMD chip.

Image Source: AMD.

AMD is expected to pack more computing power in the Vega GPUs and to price them competitively against NVIDIA's offerings. It will also add the Instinct line of accelerators to Vega GPUs to trump NVIDIA in terms of compute power in applications beyond gaming, such as machine intelligence.

Leaked benchmarks from multiple sources indicate  that AMD's MI8 and MI25 GPU accelerators are going to help the Vega outperform NVIDIA's Titan X in machine intelligence applications. The leaks indicate that the Instinct MI25 accelerator is said to be twice as fast as the NVIDIA Pascal X in deep learning benchmarks and will go head-to-head against NVIDIA's next GPU -- the GTX 1080 Ti.

Digital Trends reported NVIDIA is likely to price the GTX 1080Ti at around $900, as compared to the GTX 1080's base price of $600 and the Titan X's $1,200. On the other hand, the top of the line AMD Vega GPU is expected to come in at $800 to $1,200, while the competing GTX 1080 Ti should fall around $700. Strategic pricing will be critical to AMD's success in the high-end GPU space.

Will NVIDIA's next move be enough?

NVIDIA will fight back with its next-generation Volta architecture. Rumors suggest that NVIDIA's Pascal successor is expected to come out toward the end of 2017 or in early 2018.

A GTX 1080 graphics card.

Image Source: NVIDIA.

Though the specs of these Volta cards are not yet available, the company is reportedly going to employ Taiwan Semiconductor as its manufacturing partner, using a more efficient manufacturing process. The Volta should be based on a leaner 12 nanometer node versus the AMD Vega's 14 nanometer.

Theoretically, a smaller die shrink should deliver performance gains. GlobalFoundries, for instance, estimates that its 12nm process delivers 15% performance gains and consumes 50% less power than the 16nm process. NVIDIA will want to solidly outperform the Vega with its next-generation offerings.

But until the Volta hits shelves, AMD will have the opportunity to continue grabbing market share, extending the company's strong momentum from 2016.