NVIDIA's (NASDAQ:NVDA) gaming segment had another strong quarter, with revenue up 52% year over year. On a trailing twelve month basis, gaming revenue was up to $4.1 billion, which represents 53% of NVIDIA's total revenue.

Selling graphics processing units (GPUs) to PC gamers is NVIDIA's bread-and-butter business, so it's important for investors to keep tabs on the health of the video game industry. The most fundamental element that generates growing demand for NVIDIA's GeForce GPUs is the steady release of quality games that take advantage of the latest hardware on the market. According to Nielsen, 64% of gamers 13 or older reported that having the latest hardware is important, which plays right into NVIDIA's hands as the GPU provider of choice for PC gamers.

Side view of NVIDIA's GeForce GTX 1080 graphics processor


New game releases pushing gamers to upgrade

"Gamers continue to love our Pascal-based GPUs," as NVIDIA Executive Vice President and CFO Colette Kress said on the second quarter conference call. Heading into the quarter, the latest data from Jon Peddie Research placed NVIDIA's market share way ahead of AMD -- 72.5% to 27.5%, respectively -- giving credence to Kress's statement.

A few of the more popular games today on PC, including Playerunkown's Battlegrounds and Overwatch, are basically non-starters if you don't have at least a Pascal-based GTX 10 series GPU or equivalent. The fall release schedule will feature several blockbuster titles -- Call of Duty: World War II, Destiny 2, Star Wars: Battlefront 2, and Assassin's Creed: Origins -- that will provide extra incentive for PC gamers to upgrade.

Although it's not a perfect method to track the upgrade cycle, Steam -- the popular digital distributor for PC games -- runs a monthly survey where they ask users to report the current hardware configuration of their computer. For the July survey, NVIDIA's GeForce cards dominate the top of the video card chart. More importantly, the survey shows a gradually increasing usage among Steam users across several GeForce GTX 10 series GPUs in recent months.

GPU March April May June July
GeForce GTX 1050 0.81% 1.07% 1.55% 1.72% 2.17%
GeForce GTX 1060 4.49% 4.98% 5.23% 6.2% 6.37%
GeForce GTX 1070 3.22% 3.36% 3.30% 3.55% 3.41%
GeForce GTX 1080 1.59% 1.65% 1.64% 1.70% 1.74%

Data source: Steam hardware and software survey for July 2017.

NVIDIA's GeForce brand is very well represented on the esports scene, which serves as great marketing for the power of its GPUs being used at the highest level of gameplay. In 2016, NVIDIA's GeForce GTX was represented at several of the top esports championships, including the Blizzcon World Championship Series, League of Legends World Championship, and ESL One Cologne Counter-Strike: Global Offensive Major.

Arena full of spectators watching the Dota 2 esports event.

Dota 2 esports event. IMAGE SOURCE: NVIDIA 

For the third consecutive year, the GeForce GTX brand was the Dota 2 esports tournament official graphics card. This year's International Dota 2 Championships is paying out a $24 million cash prize to the winner, more than double the cash payout of the U.S. Open golf event. With that much money on the line, professional Dota players demand the absolute best graphics performance available, so it's significant for NVIDIA's GeForce GTX cards to be represented at one of the biggest esports events in the world.

Pascal-based graphics cards are still the one to beat

Just recently, Advanced Micro Devices (NASDAQ:AMD) released its Radeon RX Vega GPUs which are designed to compete head-on with NVIDIA's highend GeForce GTX 1080 and 1070 cards. The early reviews suggest AMD still has some catching up to do, as the new Vega cards are able to match NVIDIA's GTX 1080 and 1070 on performance, but require more power. 

A review from PC Gamer suggests the new line of Vega GPUs are the cards that should have been released a year ago, which begs the question why it took AMD so long. It's interesting that the reviewer mentions off-hand it might have been lack of resources, among other reasons. NVIDIA, indeed, has a huge financial advantage over its arch-rival, which leads me to believe not only will NVIDIA's Pascal-based GPUs remain the one to beat through the holiday season, but more importantly, NVIDIA is in a much stronger position for the long term.

Meanwhile, NVIDIA just launched its Volta GPU design for datacenters, and, although the company hasn't announced anything, Volta GPUs for gamers are expected in short order. When NVIDIA does announce a new line of highend cards for gamers, it will take graphics performance to yet another level, since the Volta-based generation represents a five times performance improvement over the current Pascal generation.

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.