The cloud gaming market is in its early phases of growth, and Nvidia (NASDAQ:NVDA) has already moved into a dominant position in this multi-billion-dollar market that's expected to generate more than $6 billion in revenue by 2024. The company has already reported gaming revenues of $3 billion, nearly half its total revenue that was generated in the second quarter. 

Nvidia's GeForce NOW cloud gaming service had more than 12 million members at the end of Sept. This is impressive considering that the number of paying cloud gaming subscribers is expected to hit 24 million by the end of the year. So, Nvidia could finish 2021 with more than 50% of the cloud gaming market under its control. Nvidia's latest move indicates that it is going all out to capture a bigger share of the cloud gaming opportunity with the launch of its latest service. Let's see why.

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Nvidia brings flagship gaming to gamers at a mouth-watering price

Nvidia has just announced a new membership tier on the GeForce NOW platform that will allow gamers to experience the power of its RTX 3080 graphics processing unit (GPU) without owning one. In simpler words, games will run on an RTX 3080-powered gaming rig and they will be streamed through the cloud.

Powered by what Nvidia calls the world's most powerful gaming supercomputer -- the GeForce NOW SuperPOD -- gamers can now stream games to their personal computers or MacBooks at a resolution of up to 1440p and 120 frames per second. Meanwhile, owners of Nvidia's media streaming device -- SHIELD TV -- can stream games in 4K HDR at 60 frames per second, which they couldn't do earlier. The SHIELD TV allows users to stream video content to their televisions through apps. The GeForce NOW RTX 3080 membership can turn those TVs into a gaming system. 

This is a big deal as gamers will be able to experience high-end gaming without having to invest in high-end hardware like an RTX 3080 graphics card. Nvidia has priced the GeForce NOW RTX 3080 membership at $99.99 for six months. It will initially be available to the company's founders and priority members in North America and Western Europe before Nvidia makes them available to all gamers.

It is worth noting that Nvidia's priority members pay $49.99 for a six-month priority membership, so they will have to upgrade to the RTX 3080 membership by paying the difference of $50 for the six months. However, priority members could be encouraged to upgrade as the RTX 3080 membership will give them access to an eight-hour session of gaming as compared to a six-hour session on the current priority plan. Moreover, gamers on the priority subscription can only play games at a resolution of up to 1080p and 60 frames per second. Additionally, the RTX 3080 membership tier gives customers access to RTX 3080-class performance as compared to the priority plan's RTX 2080 or GTX 1080-powered servers. 

Nvidia has cast a wider net over the cloud gaming market with the addition of the RTX 3080 membership. Gamers on a budget can opt for the priority plan, while those looking for high-end gaming can go for the RTX 3080 plan that costs twice as much. This could drive stronger revenue per user for Nvidia's cloud gaming business.

With the company's 12 million GeForce NOW users at the end of last month, assuming that all of those members were paying nearly $100 a year for the priority plan, Nvidia would be generating $1.2 billion in revenue from GeForce NOW. Throw in the RTX 3080 plan that could generate nearly $200 from each user annually, Nvidia now seems on track to substantially increase its cloud gaming revenue.  

Setting the stage for rapid subscriber growth

The new plan can rapidly increase Nvidia's GeForce NOW membership base as it solves a key problem for gamers. The graphics card shortage has sent GPU prices soaring, and gamers are unlikely to find relief anytime soon as the shortage is expected to continue into 2022.

As a result, it is difficult for gamers to lay their hands on an RTX 3080, and even if they manage to find one, they'll have to pay a heavy premium over the card's manufacturer's suggested retail price of $699. For instance, the average price of the RTX 3080 on eBay was more than $1,600 in the first two weeks of October.

The GeForce NOW RTX 3080 membership plan is a cost-effective way to get into high-end gaming. Additionally, Nvidia points out that gamers with old or underpowered PCs can take advantage of the service to experience the latest games at a higher resolution and frame rate. According to the company's blog:

That means any underpowered PC or laptop — even with four-year-old integrated graphics — is instantly transformed into a gaming rig capable of displaying the hottest PC games in 1440p at 120 FPS with a compatible monitor that supports a refresh rate of 120Hz or higher.

All of this indicates that Nvidia is doubling down on the cloud gaming market. Its strategy of making high-end gaming accessible to gamers without the hardware to play resource-heavy games locally through the cloud can create a substantial recurring revenue stream. And it can help Nvidia remain a top growth stock for a long time to come. Throw in the other major catalysts the company is sitting on, and it becomes easy to see why Nvidia's high growth rates could be here to stay.

Its revenue was up 68% year-over-year in the fiscal second quarter to $6.5 billion and adjusted earnings had increased 89% year-over-year to $1.04 per share. This impressive growth is why Nvidia commands a premium valuation, trading at 83 times trailing earnings. However, a forward earnings multiple of 49 times points toward robust bottom-line growth, making Nvidia an ideal bet for investors willing to pay a rich valuation for a high-growth company.

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.