Advanced Micro Devices (NASDAQ:AMD) has done really well to cut into NVIDIA's (NASDAQ:NVDA) lead in the discrete graphics card space. Jon Peddie Research's latest discrete GPU (graphics processing unit) data shows that AMD controlled 36.1% of this market at the end of the second quarter of 2018, with NVIDIA controlling the rest. AMD"s share is up from 30.3% during the same period last year.

The company's impressive progress has been driven by solid demand for its graphics cards by cryptocurrency miners. However, with that catalyst now fading, it won't be long before NVIDIA starts turning the tables.

An AMD GPU with gamer playing on a computer in the background.

Image Source: AMD.

The GPU landscape is changing

Discrete GPU shipments in the second quarter fell 22.1% sequentially, which is significantly greater than the 10-year average decline of 9.2% for the period. This drop can be attributed to the slowing demand for GPUs for cryptocurrency mining. NVIDIA, for instance, said in August that its crypto-related revenue came in at just $18 million for the quarter that ended in July, a massive crash from the $289 million in revenue it reported during the first quarter.

The company was originally anticipating $100 million in crypto-specific revenue for the second quarter, and expected this business to make a significant contribution to its top line this year. But that's not going to be the case anymore as NVIDIA doesn't expect any notable contribution from crypto-driven sales going forward.

This changing trend is bad news for AMD, since mining-related demand has been the driving factor behind its GPU sales over the past year, especially after its Vega cards turned out to lag NVIDIA's offerings thanks to higher power consumption and steep pricing. The fact that AMD's offerings were supposedly better for cryptocurrency mining purposes gave the chipmaker an upper hand. Additionally, AMD was optimizing its cards for crypto-mining through software updates so that it could mint big money from this trend.

However, the massive crash in cryptocurrency prices and the emergence of specialized mining chips has dented GPU demand from this segment. This will hurt AMD and the inferiority of its GPUs to NVIDIA's offerings could haunt it in subsequent quarters, since PC gamers are likely to prefer the latter's upcoming products based on the new Turing architecture.

Forget cryptocurrency mining

PC gaming is the real growth opportunity for GPU manufacturers. In fact, PCs used 357 million graphics cards in 2017 (including integrated GPUs), which easily dwarfs the 3 million GPUs deployed for crypto-mining.

In a smart move, NVIDIA was trying to entice gamers when there was a shortage of GPUs owing to mining-driven demand. But the most important reason NVIDIA is all set to attract more gamers into its fold is the new Turing architecture. The company revealed Turing last month and promised that its new graphics cards will deliver six times the performance of the previous-generation cards.

More importantly, NVIDIA is packing some serious technology with this architecture in the form of real-time ray tracing. This is a rendering technique employed by movie studios to create life-like reflections and shadows. NVIDIA is the first one to bring this technology to GPUs, so gamers will have to buy its graphics card to enjoy a more life-like video gaming experience.

AMD, on the other hand, claims that it is on track to launch the world's first 7-nanometer GPU by the end of the year. This should help it record a marked improvement over its existing 14nm Vega GPUs, as a smaller process node allows a chipmaker to reduce production costs, improve power consumption, and boost performance by packing more processing power into a smaller size.

Since NVIDIA's new Turing GPUs are based on the 12nm manufacturing process, AMD should enjoy a technological lead when it launches its next-generation GPUs. But NVIDIA's advantage is that it has already launched its cards in time for the holiday season, with the GeForce RTX 2080 Ti and the RTX 2080 already available for purchase.

Also, NVIDIA is witnessing solid demand for its latest offering thanks to the introduction of real-time ray tracing. So the green army's new cards already have an upper hand, while AMD's new gamer-centric offerings are yet to be seen.

This could shift the GPU momentum in NVIDIA's favor.

Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Nvidia. The Motley Fool has a disclosure policy.