Demand for Advanced Micro Devices' (NASDAQ:AMD) graphics cards has risen sharply in the past year thanks to demand from cryptocurrency miners, allowing it to take a big bite out of archrival NVIDIA's GPU (graphics processing unit) market share. In fact, AMD commanded close to 35% of the discrete GPU market at the end of the first quarter of 2018, according to Jon Peddie Research, up from 27.5% in the prior-year period.

But AMD's crypto-driven boost could be about to end as a dedicated and more affordable mining chip comes into the market, so this isn't a catalyst that will stay around in the long run. Instead, the multibillion-dollar server chip market looks like the more sustainable catalyst for AMD. Here's why.

A processor on an integrated circuit.

Image Source: Getty Images.

A small fish in a big pond

Intel (NASDAQ:INTC) is the 800-pound gorilla in the server chip market, holding a monopoly-like position back in 2016 with a 99% share. So AMD was almost nonexistent in this market a couple of years ago. But the script started changing last year after the launch of AMD's EPYC server chips.

AMD has struck partnerships with several notable tech names that have agreed to use its EPYC server chips. Late last year, top cloud service providers including Baidu and Microsoft selected the company's EPYC chips for commercial deployment in their data centers. Additionally, OEM (original equipment manufacturers) partners including Dell, Acer, and Asus have been bringing EPYC-powered server systems into the market.

In fact, AMD now has more than 40 EPYC-based platforms in the market and the number is likely to go up thanks to the company's latest design win. Networking equipment giant Cisco is now offering the EPYC 7000 series processors into its UCS series servers. Thanks to this deal, AMD now counts three of the top four server vendors as its clients, with Dell and Hewlett-Packard Enterprise being the other two.

These vendors control around 43% of the global server market, and all of them have launched EPYC-based systems. As such, it isn't surprising to see AMD is confident of scoring a mid-single-digit market share of the server chip market by the end of the year.

AMD will remain a small fish in this pond, but the massive size of the server market means that such a small gain could translate into a big financial windfall for the company.

A big financial impact

Intel's server chip business was worth $17.2 billion back in 2016 when it controlled almost all of this market. Chipzilla's revenue from this business swelled to $19.1 billion last year and is on track to hit nearly $22 billion in 2018, according to Wall Street estimates.

Assuming that AMD is able to carve a 5% share of this market as it originally expects, it would generate around $1.1 billion in revenue from this segment this year. It was generating almost nothing from this market just a couple of years ago when there was no EPYC.

AMD's 2017 revenue stood at $5.3 billion, so server chips could give its top line a 20% boost this year. But the company has its sights set on the bigger prize, as it is looking to eventually corner a bigger share of this market with its second-generation server chips.

AMD is expected to launch the next-gen server chips, based on a 7nm manufacturing process, sometime next year. As such, it looks all set to steal a march over Intel -- which has delayed its competing 10nm platform yet again, this time to 2019 -- so chips based on this platform won't be hitting the market until 2020 at least.

This turn of events shouldn't surprise many as AMD controlled 20% of the server chip space back in its heyday in 2007.

Servers could be AMD's savior

AMD's GPU business has been on a roll over the past few quarters, but that's not because of the company's cutting-edge product development. NVIDIA still has the superior GPU technology, and its focus on catering to the gamer population means that it can reclaim its lost market share once the cryptocurrency demand comes to an end.

This is why AMD's rising clout in the server market will be crucial to its long-term growth. AMD has a great opportunity to eat into Chipzilla's market share with the help of a solid alternative at competitive prices, and its recent partnerships seem to suggest it is succeeding on this front.