Advanced Micro Devices (AMD +13.91%) is winning big from the gaming console market as its semi-custom semiconductor chips are used by Microsoft and Sony to power their latest generation consoles, the PlayStation 5 (PS5) and the Xbox Series X/S.
These consoles have given AMD's enterprise, embedded, and semi-custom (EESC) business a big boost, triggering massive revenue growth as consumers have been lining up to buy the PS5 and the Xbox Series X/S. The demand for these consoles has exceeded supply so far. The good news for AMD is that the PS5 and the new Xbox devices are expected to keep selling in big numbers in the long run.
Now, AMD's semi-custom chip sales are set to get another shot in the arm thanks to Valve Corp.'s latest handheld gaming PC (personal computer) that could turn out to be a sales hit.
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Valve's Steam Deck goes online
On Feb. 26, Valve announced that its Steam Deck console is now available to order for the first group of customers who had reserved the device. Valve will be shipping the device in batches as it tries to work through the production constraints caused by the global chip shortage, which had forced the company to delay the release of the Steam Deck by two months from its original schedule of December 2021.
NASDAQ: AMD
Key Data Points
It is also worth noting that Valve has witnessed stronger-than-expected demand for the Steam Deck. Gabe Newell, president of Valve, told the BBC that the unexpectedly high demand for its handheld PC has led to a "demand shock." This is not surprising as the handheld gaming device has a lot going for it in terms of specs, pricing, and games.
Powered by AMD's semi-custom processor based on the Zen 2 CPU (central processing unit) and the RDNA 2 GPU (graphics processing unit) microarchitectures, the Steam Deck is available in three configurations. It starts at $399 for the 64 GB (gigabyte) model, $529 for the 256 GB model, and $649 for the 512 GB model. While these prices are on the higher side, considering that Nintendo's Switch Lite handheld console is priced at $199, the Steam Deck's advantage is that it can play resource-hungry PC games in a handheld format.
Additionally, the Steam Deck will benefit from the large library of games and users on the Steam game distribution service. The Steam library has more than 850 titles that are either fully functional or playable on the Steam Deck, and Valve is testing more games for the device. So, the gaming library is likely to get bigger as Valve and game developers optimize titles for the Steam Deck.
What's more, Steam had 28 million concurrent users on its platform at the beginning of January 2022. The service has a monthly active user base of more than 120 million, which means that Valve already has a massive ecosystem that could end up buying the Steam Deck. The console's cloud save feature, which allows gamers to save their game progress on one device and resume from another device such as a PC or a laptop, could be a key selling point for the Steam Deck as it could encourage more users within the Steam ecosystem to buy the device.
As such, it won't be surprising to see the Steam Deck become a successful product as it ticks a lot of the right boxes, and that could be great news for AMD.
The Steam Deck could become an additional catalyst for AMD
The Nintendo Switch, with lifetime sales of 103 million units in under five years, is considered the Steam Deck's closest competitor because of its handheld form.
However, the Steam Deck is the more powerful console here. Additionally, Steam's massive user base, large gaming library, and the fact that the Steam Deck makes PC-level gaming accessible in a handheld format could help Valve sell the console in large numbers. As a result, it won't be surprising to see the Steam Deck give the Nintendo Switch a run for its money.
What's more, Valve is reportedly working on the next generation of the Steam Deck console already, indicating that it anticipates the device to be a hit with customers. So, the Steam Deck could eventually ship millions of units in the long run, becoming another major catalyst for AMD's EESC business after the PS5 and the Xbox.
The EESC business generated $7.1 billion in revenue for AMD in 2021, producing 43% of the company's total revenue. The segment's revenue had more than doubled over the prior year's figure of $3.33 billion, driven by the production ramp of the PS5 and the Xbox consoles that still have a lot of room for growth.
The Steam Deck's success can accelerate the growth of the EESC business because of what it offers and the huge market for handheld consoles that it could tap into, giving investors another reason to buy AMD as it can continue to remain a top video game stock with the addition of a new growth driver.
