Advanced Micro Devices (AMD -2.38%) has been chipping away at arch-rival NVIDIA's (NVDA 3.51%) discrete graphics card market share for a few years now, and did it once again in the first quarter of 2020, according to the latest numbers from Jon Peddie Research.

Jon Peddie Research's latest discrete graphics processing unit (GPU) report reveals that AMD was sitting on nearly 31% of the market in the first quarter of 2020. That was a nice jump from the prior-year period's market share of nearly 22.7%, which means that NVIDIA has lost substantial ground to its smaller rival.

Graphics cards stacked together.

Image source: Getty Images.

Why AMD is winning the GPU battle

NVIDIA has been traditionally superior to AMD on the technology curve, but the latter has caught up of late thanks to its Navi family of GPUs, which are based on the 7-nanometer RDNA architecture. The Radeon RX 5700 series graphics cards that hit the market nearly a year ago were not only priced aggressively, but they also outperformed their NVIDIA counterparts.

That is probably the reason why AMD's market share moved north by a substantial margin in the first quarter of 2020. AMD has been following a tried-and-tested strategy of offering better bang for the buck since 2016 when it launched its Polaris cards aimed at the budget end of the market. The RX 5700 series graphics cards launched last year make it clear that AMD is following a similar playbook in the mid-range GPU market, and it seems to be working.

The reason why AMD has been able to pack in a solid price-to-performance ratio compared to NVIDIA graphics cards is because of an advanced manufacturing process. The company's RDNA architecture is based on a 7nm process, while NVIDIA's current generation Turing graphics cards are based on a 12nm process.

A smaller manufacturing node means that the transistors on the chip are smaller and are packed closely together. This leads to a jump in the compute capacity of the chip, reduces power consumption, and lowers manufacturing costs because of a smaller die size.

However, there might be a change in the status quo coming, as NVIDIA is getting ready to launch discrete GPUs based on the new Ampere architecture later this year.

NVIDIA's upcoming graphics cards will pose a new challenge

The Ampere architecture-based consumer graphics cards from NVIDIA could be based on a 7nm manufacturing process, though there are rumors suggesting that they may also be manufactured using a 10nm process. The Ampere-based graphics cards could hit the market close to the fourth quarter of 2020.

With this move, NVIDIA is expected to close the technology gap that AMD has enjoyed of late. It is rumored that the Ampere cards could be four times more powerful in ray-tracing performance, with the top of the line card expected to be 40% faster in terms of overall performance than its predecessor.

It remains to be seen how NVIDIA goes about the pricing of these cards, as the company has been making its offerings pricier of late. But NVIDIA may not have that luxury this time -- AMD looks all set to keep up the heat thanks to its upcoming GPUs based on the RDNA2 architecture, which is expected by the end of the year.

The RDNA2 architecture is an improved version of AMD's existing 7nm process node, but the company is promising extensive gains over the current graphics cards. According to AMD's estimates, RDNA2 graphics cards could deliver a 50% gain in performance per watt over the current ones. They will also come equipped with ray-tracing technology, bringing AMD up to the level of NVIDIA, which has been offering this technology for nearly two years now.

In the end, things are about to get interesting in the discrete GPU space in the second half of 2020. NVIDIA could stymie AMD's resurgence, thanks to a generational leap that is expected to bring impressive performance gains. However, if AMD can deliver the gains that it is promising and sticks to its strategy of offering high-bang-for-the-buck products, it could keep eating into NVIDIA's discrete GPU dominance and remain a top growth stock.