Advanced Micro Devices (NASDAQ:AMD) has usually played second fiddle to Nvidia (NASDAQ:NVDA) in the market for discrete graphics cards, but it looks like it could gain an upper hand over its bigger rival in this lucrative space one day.

Nvidia controlled 83% of the discrete graphics processing unit (GPU) market in the second quarter of 2021, increasing its dominance to the detriment of AMD, which held the rest of the market. However, third-party reports indicate that AMD has started turning the tide thanks to its accessible pricing and the shortage of Nvidia graphics cards. Let's see why this could be a big deal for AMD.

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AMD reportedly sells more graphics cards than Nvidia

According to German retailer Mindfactory's weekly sales data (reported by Hardware Times), AMD accounted for 75% of graphics card sales in the last week of October, and Nvidia accounted for the remainder. This was a departure from the usual trend of Nvidia accounting for more than 60% of Mindfactory's weekly sales and AMD coming in second.

The reason why AMD pulled significantly ahead of Nvidia in terms of weekly sales is probably the latter's strategy to ensure that GPU prices don't run out of steam. Last month, a third-party report alleged that Nvidia is cutting down on the shipments of RTX 30 series graphics cards to keep supply tight and prevent prices from crashing.

The report also pointed out that the chip giant has enough units at its disposal to meet its quarterly targets, so it may choose to pause production before refreshing the RTX 30 series lineup with new, more powerful cards early next year. That may look like a good strategy to keep prices healthy and ensure strong financial growth of Nvidia's video gaming business, but it is probably coming at the cost of shipments and market share.

According to Mindfactory data, AMD's recently launched RX 6600 GPU was its top-selling chip with weekly shipments of 745 units. The RTX 3070 was Nvidia's top-selling card with shipments of just 400 units on Mindfactory's platform. This isn't surprising as customers can get their hands on the RX 6600 at reasonable prices on the street, with the card selling between $400 and $500 as compared to AMD's suggested starting price of $329.

This makes the RX 6600 an ideal bet for gamers looking to play games at a resolution of 1080p, as buying its Nvidia counterpart -- the RTX 3060 -- would turn out to be an expensive affair for gamers. Though the RTX 3060 has the same manufacturer's suggested retail price (MSRP) of $329, its average actual price is closer to $700, according to data compiled by Tom's Hardware.

This explains why Mindfactory consumers lapped up more AMD cards in the last week of October. Now, investors should take the Mindfactory data with a pinch of salt, as it is just one of the many retailers around the globe selling GPUs, so its sales cannot be a representation of the entire market.

But at the same time, management commentary on AMD's latest earnings conference call indicates that it is indeed making progress in the GPU market, which can pave the way for stronger growth in the computing and graphics segment.

A look at the bigger picture

When AMD released its third-quarter results on Oct. 26, the company pointed out in its press release that the average selling price (ASP) of its GPUs "grew year-over-year and quarter-over-quarter driven by high-end Radeon graphics product sales and AMD Instinct data center GPU sales." Meanwhile, CEO Lisa Su pointed out on the earnings conference call, "In graphics, revenue more than doubled year over year and grew by a strong double-digit percentage sequentially, driven by shipments of our next-generation AMD CDNA 2 data center GPUs and demand for Radeon 6000 GPUs in the channel."

AMD ramped up the production of its graphics cards and expanded its portfolio with the launch of the RX 6600, as mentioned earlier. The increase in GPU sales and ASP contributed toward 44% year-over-year growth in AMD's computing and graphics segment, which registered $2.4 billion in revenue last quarter.

Now, the demand for discrete GPUs is expected to grow at a terrific pace. Jon Peddie Research estimates that $44 billion worth of discrete graphics cards will be sold in 2023 as compared to $29 billion in 2020. So, any potential increase in AMD's market share means the company will be in a stronger position to take advantage of a huge opportunity.

This is yet another reason why investors looking to get into a growth stock should take a closer look at AMD, apart from the gains it is making in the data center and the gaming console markets. Analysts expect the company's earnings to grow at an impressive annual rate of 35% over the next five years, though it won't be surprising to see it grow faster thanks to the potential gains in the GPU space where it has a lot of room to grow its market share.

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.