Shares of Nvidia (NVDA 0.76%) have nearly quadrupled in price since the beginning of 2020 thanks to the robust demand for its powerful graphics cards that power a variety of applications, including personal computers, data centers, and autonomous cars.
The chipmaker's dominant position in the lucrative video gaming market is one of the biggest reasons it has clocked such terrific revenue growth in recent quarters. Video gaming revenue jumped a whopping 85% year over year in the second quarter of fiscal 2022 to $3.06 billion. The segment produced 47% of total revenue last quarter, so it moves the needle in a big way for the company.
NVDA data by YCharts. TTM = trailing 12 months.
The good news for Nvidia investors is that the gaming business will continue to power its growth. Its nearest rival, Advanced Micro Devices (AMD 0.69%), is failing to make headway in this multibillion-dollar space, according to the latest market share numbers from Jon Peddie Research.
Nvidia crushes AMD once again in graphics cards
Peddie's research points out that Nvidia's share of the discrete graphics processing unit (GPU) market stood at 83% in the second quarter of 2021, with AMD holding the rest. That's an improvement over the 81% market share the company held in the first quarter and 80% in the second quarter of 2020. It is also worth noting that it has clawed back substantial market share from AMD, since the latter held nearly 31% of the discrete GPU market in the first quarter of 2020.
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There are two reasons Nvidia has been crushing AMD in the graphics card market over the past year. First, it brought a big leap in performance with the Ampere architecture-based RTX 30 series cards that were released a year ago. The new cards pack serious performance gains at aggressive prices, triggering an upgrade cycle that has led to tremendous demand and a supply shortage.
Ampere is Nvidia's fastest-growing gaming GPU architecture, with sales of cards based on this platform growing at twice the pace of the previous generation Turing cards in the initial months of launch. More important, gamers are paying more money; the average selling prices of the Ampere cards at launch stood at $360, compared to $300 for the Turing cards during their launch.
Nvidia is still struggling to meet the massive demand for the RTX 30 cards. CEO Jensen Huang noted on the August earnings conference call that "a supply-constrained environment for the vast majority of next year" is likely. Despite this constraint, the company is doing well to increase its GPU market share.
This brings us to the second reason it has gotten a jump on AMD. Huang explained on the August earnings call that the company has and continues to secure "pretty significant long-term supply commitments." This is probably the reason third-party sources note that Nvidia has increased the frequency of restocking its cards in Europe and the U.S.
Additionally, the chipmaker has taken steps to ensure that its cards find their way to gaming enthusiasts instead of cryptocurrency miners by limiting the mining capabilities of popular RTX 30 series cards. On the other hand, AMD's cards have been difficult to secure, and that seems to have contributed to its falling GPU market share.
According to a report by game distribution platform Steam, the flagship RTX 3090 GPU alone has sold more units than AMD's entire lineup of RX 6000 series cards. This shows the strength of Nvidia's supply chain, pricing power, and installed base. These factors could help it sustain its impressive gaming growth in the future.
The massive market share could drive long-term growth
It won't be surprising to see Nvidia continue to hold more than 80% of the discrete GPU market for a long time to come. One of the reasons might be because 80% of the company's installed base of gaming GPU users are yet to upgrade to the Ampere-based cards. As the chipmaker brings more supply into the market to increase the availability of its latest cards, its sales could continue growing at a fast clip.
Additionally, Nvidia is expected to launch a new generation of graphics cards next year that could be based on a more advanced manufacturing process, giving gamers another reason to upgrade. All of this could help it dominate the GPU market in the long run. Now, the graphics card market is expected to generate $54 billion in revenue by 2025 as compared to last year's $23 billion, indicating that Nvidia's largest business is built for long-term growth and will help the chipmaker remain a top growth stock to deliver more upside.
