Advanced Micro Devices (AMD -4.00%) is giving NVIDIA (NVDA -2.42%) sleepless nights. The latest numbers from Jon Peddie Research revealed that AMD ate significantly into NVIDIA's share in the discrete graphics card market in the fourth quarter of 2019.

AMD's fourth-quarter discrete graphics processing unit (GPU) market share was 31% -- a significant improvement over the year-ago period's 18.8%. NVIDIA commanded the rest of the discrete GPU market, which means that it lost substantial ground to its archrival.

AMD takes the GPU market by storm

The research points out that the shipment of discrete graphics cards jumped 33.4% annually and 12.2% sequentially during the final quarter of 2019. AMD cornered the majority of this growth as its quarter-over-quarter shipment growth came in at 22.6%. NVIDIA, on the other hand, saw a 1.9% drop in shipments over the same period.

Buy, sell, and hold written on three sides of a die.

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AMD's impressive market-share gain during the quarter is not surprising. The company launched new mid-range graphics cards in the second half of 2019 that were priced competitively when compared to their NVIDIA counterparts. What's more, they even gave competing NVIDIA cards a run for their money on the performance front.

The fact that AMD decided to reduce the prices of the RX 5700 and the RX 5700 XT GPUs just two days before their launch made them even better value-for-money options when compared to similar offerings from NVIDIA. It was on the back of such product development moves that AMD managed to eat significantly into NVIDIA's discrete GPU dominance in the final quarter of 2019.

This should come as a relief to investors who were disappointed last month after AMD's guidance for the current year turned out to be "conservative." The company's quarterly results were terrific, to say the least, but Wall Street was probably expecting much more considering AMD's sky-high valuation.

AMD anticipates 29% annual top-line growth in 2020 to $8.7 billion. That's much better than the 4% revenue growth it delivered in fiscal 2019, and a shade higher than the consensus estimate of $8.6 billion. But AMD's earnings multiple of 167 means that it needed to do more to satisfy the market.

AMD's impressive market-share growth in the GPU market should give Wall Street a reason to be hopeful about the company beating its own estimates. The company's computing and graphics business accounts for nearly 70% of the total revenue, and it could receive a nice shot in the arm this year if AMD manages to sustain its GPU momentum.

But AMD faces a couple of challenges that could hurt its progress in graphics cards.

Why NVIDIA can mount a comeback

NVIDIA continues to dominate the discrete GPU space with a solid market share of nearly 69%. This indicates that NVIDIA has a much-stronger installed base of graphics card users than AMD.

In fact, as Jon Peddie Research found out from a joint survey of 4,500 PC gamers in October last year, 55% of gamers use an NVIDIA graphics card. Of them, 61% are currently using older-generation NVIDIA GPUs, while 27% use the latest generation, top-of-the-line RTX graphics cards based on the Turing architecture.

Additionally, NVIDIA itself had pointed out a year ago at its investor day that only 2% of its installed base is currently using older-generation graphics cards. Since then, it is likely that more gamers would have switched to the latest Turing architecture. But there is a strong probability that a majority will continue to remain on older platforms.

NVIDIA is expected to give gamers rocking older-generation GPUs a good reason to upgrade this year. The company is expected to unveil its next-generation Ampere GPUs this year. These cards are expected to be 50% faster in terms of graphics performance over the current Turing cards and equally power efficient.

This is something that AMD needs to worry about as the Ampere GPUs will be based on a 7-nanometer manufacturing process. NVIDIA's existing Turing architecture is based on a 12-nanometer process, giving AMD an advantage as its Navi platform is based on a 7-nanometer node. So NVIDIA is on track to wipe that advantage off this year, which will allow it to deliver more powerful and power-efficient graphics cards at competitive prices.

AMD's recent resurgence in the GPU market may not be sustainable as the year progresses. NVIDIA could recover lost ground and dent AMD's momentum. If that's indeed the case, then AMD may find it difficult to match investors' growth expectations, something that might weigh on its stock price.