Please ensure Javascript is enabled for purposes of website accessibility
Free Article Join Over 1 Million Premium Members And Get More In-Depth Stock Guidance and Research

NVIDIA's Biggest Hurdle for 2019

By Harsh Chauhan - Updated Apr 10, 2019 at 10:43PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The graphics specialist risks losing the advantage to its archrival.

Check out the latest NVIDIA earnings call transcript.

High-flying chipmaker NVIDIA ( NVDA -1.85% ) was taken to the cleaners in the final quarter of 2018. Its latest set of results and the accompanying guidance were not up to expectations, bringing an end to a golden period that saw the graphics chip specialist deliver rapid growth and beat the broader market handily.

The bad news is that NVIDIA is entering 2019 on the back foot thanks to the cryptocurrency mining bust that has led to excess channel inventory of GPUs (graphics processing units). So the company is finding it difficult to move its cards, and also has to contend with weaker pricing due to the loss of the crypto catalyst.

NVIDIA estimates that the inventory correction will last for a couple of quarters. But that doesn't guarantee a return to its glory days, as NVIDIA faces a big hurdle in the form of rival Advanced Micro Devices' ( AMD 0.27% ) new GPU architecture.

Person walking on a tightrope strung across .a gap in mountains

Image source: Getty Images.

AMD's new weapon

Check out the latest Advanced Micro Devices earnings call transcript.

PC games are getting more complex and graphics-intensive with each passing generation, which is why the demand for more capable and power-efficient GPUs will increase. Shrinking the size of the manufacturing process node is one way to boost GPU performance while keeping a handle on power consumption.

A smaller manufacturing process node means that more transistors are packed closely together in a tinier space. As a result, the electrons travel a shorter distance in a chip that's manufactured using a 7-nanometer (nm) process than in one made using a 14nm process. That's why the chip built on the smaller node will deliver more computing power per watt of energy consumed.

AMD's advantage is that it looks all set to beat NVIDIA to a smaller manufacturing node. The company recently revealed a couple of AMD Radeon Instinct GPUs -- the MI60 and the MI50 -- which are the world's first graphics cards based on a 7nm process. However, these cards are meant for data centers and not for mainstream gaming, though it shouldn't be long before AMD leverages this technology for consumer GPUs.

AMD CEO Lisa Su is scheduled to deliver a keynote at CES 2019 on Jan. 9, where she's expected to showcase "the diverse applications for new computing technologies ranging from solving some of the world's toughest challenges to the future of gaming, entertainment and virtual reality with the potential to redefine modern life."

Gary Shapiro, the CEO of the Consumer Technology Association, which is organizing CES 2019, was quoted in a press release as saying that Su will provide "a picture of the next-generation of computing that will help redefine the future of gaming and virtual entertainment." So there's a strong possibility that AMD could unveil consumer-grade GPUs based on the 7nm manufacturing process soon.

NVIDIA is reportedly looking to launch its own 7nm GPUs sometime in 2020. So AMD could be the first one with a 7nm consumer graphics card to the market, beating NVIDIA, which recently launched new cards based on the 12nm process.

Where does NVIDIA stand?

AMD has done well to gain ground in discrete GPUs of late, but NVIDIA fought back impressively during the third quarter. Jon Peddie Research's discrete GPU market report for the third quarter of 2018 put NVIDIA's market share at 74.3%, up substantially from 63.9% during the second quarter.

However, it remains to be seen how the company's latest 20-series GPUs perform. NVIDIA launched its new graphics cards in September, and initial reports haven't been that great. High pricing, limited performance gains, and quality issues could haunt NVIDIA in the final quarter, adding to the cryptocurrency-driven pains.

There have been reports that some of NVIDIA's top-of-the-line RTX 2080 Ti graphics cards have run into problems because of quality control issues. Third-party analysis and user reports suggest that the cards are overheating.

The bad PR could give AMD a leg up over NVIDIA in the near term and make the latter's turnaround difficult. NVIDIA expects a decline in sales this quarter and its top-line growth is expected to slow down big time in the coming fiscal year. As such, there might be a shift in the momentum in the discrete GPU space next year as AMD pushes its 7nm cards into the market, while NVIDIA faces the fallout of a botched product launch and excess channel inventory.

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.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Advanced Micro Devices, Inc. Stock Quote
Advanced Micro Devices, Inc.
$145.24 (0.27%) $0.39
NVIDIA Corporation Stock Quote
NVIDIA Corporation
$318.26 (-1.85%) $-6.01

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 12/08/2021.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Our Most Popular Articles

Premium Investing Services

Invest better with the Motley Fool. Get stock recommendations, portfolio guidance, and more from the Motley Fool's premium services.