Nvidia (NVDA 0.68%) stock has crushed the market in 2021 with gains of 150%, and investors will be hoping that the graphics specialist repeats its terrific performance in the new year.
The good part is that the chipmaker has some outstanding catalysts. One in the form of the PC (personal computer) gaming business where the booming demand for graphics cards is driving its growth. And another with its terrific market share in the data center market where the demand for its accelerators is on the rise. However, there is another area that could contribute significantly to Nvidia's growth in 2022 and beyond -- cloud gaming. Let's see why that may be the case.
The cloud gaming business has gained terrific traction
Nvidia CFO Colette Kress pointed out on the company's fiscal 2022 third-quarter earnings conference call that its cloud gaming service, GeForce NOW, has more than doubled its membership in the past year to over 14 million subscribers. It is worth noting that GeForce NOW had nearly 10 million subscribers in March this year, and that number had increased to 12 million by the end of September.
As Nvidia's Q3 earnings call was held on Nov. 18, it means that GeForce NOW's membership base increased by 2 million users in less than two months. This was much faster than the previous 2 million subscriber additions that took nearly six months from March to September.
Nvidia's GeForce NOW subscriber base jumped sharply in October thanks to the launch of a high-performance membership tier, which allows gamers to play high-end games without the hassle of owning expensive hardware. By paying $99.99 for six months, subscribers to the GeForce NOW RTX 3080 membership can stream games to their PCs, MacBooks, SHIELD TVs, and certain Android devices.
According to an Nvidia blog post, subscribers can stream games at "up to 1440p at 120 FPS on PC, 1600p at 120 FPS on most MacBooks, 1440p at 120 FPS on most iMacs, 4K HDR at 60 FPS on NVIDIA SHIELD TV, and up to 120 FPS on select Android devices." Essentially, on all visual platforms, the quality and speed of gaming are top-notch with GeForce NOW. Given the massive shortage of graphics cards that is expected to last until the end of 2022, it is not surprising to see gamers going for Nvidia's new membership tier and boosting the company's subscriber base.
That's because the price of an RTX 3080 on the street can range from around $1,070 to nearly $1,800 as compared to the manufacturer's suggested retail price (MSRP) of $699. Buying a GeForce NOW RTX 3080 membership means gamers can stream games directly from what Nvidia calls the world's most powerful supercomputer -- the GeForce NOW SuperPOD -- at a fraction of the price and without having to invest in other hardware such as faster memory or a more powerful processor.
Nvidia says gamers can get "their own high-performance cloud gaming rig" that could rival the gaming experience on local hardware. The graphics specialist claims that the "GeForce NOW RTX 3080 membership delivers an instant upgrade in performance for common hardware -- a 70x increase for the average laptop on Steam (a platform for downloading video games that is unrelated to Nvidia), 13x for an M1-based Macbook Air and 7x for the most popular desktop configuration on Steam."
All of this indicates that Nvidia has made the right moves to supercharge its cloud gaming business, which could be a big deal for the company in the long run.
Nvidia is dominating a potentially lucrative market
Video games market data provider Newzoo estimates that the cloud gaming market could hit 23.7 million subscribers in 2021 and generate $1.6 billion in revenue. Nvidia's current GeForce NOW subscriber base indicates that it is already commanding close to 60% of the cloud gaming market, though it won't be surprising to see it increase its market share by the time 2021 ends.
Newzoo estimates that the cloud gaming market could hit $6.5 billion in revenue by 2024 and account for 3% of the global gaming market's revenue. So, cloud gaming still has a lot of room for growth and Nvidia has already put itself in a solid position to take advantage of this end market.
More importantly, Nvidia is going aggressively after this nascent opportunity by deploying more data centers dedicated to cloud gaming and increasing the number of games on offer. The company had 20 data centers dedicated to GeForce NOW in March this year, and it is now serving 80 countries with 30 data centers.
The launch of more data centers will help Nvidia increase the reach of GeForce NOW, while the addition of popular game publishers such as Electronic Arts will give gamers more reasons to purchase a membership. All of this could help Nvidia remain a top video game stock in the long run as the company has found another way to complement the terrific growth of its gaming business.