Nvidia's (NVDA 0.35%) fiscal 2023 second-quarter results (for the three months ended July 31, 2022) indicate that the graphics card specialist is struggling following years of terrific growth.

The chipmaker already warned that its numbers would fall way behind expectations thanks to the weakness in the gaming segment. The company reported $6.7 billion in revenue on Aug. 24, which was an increase of just 3% over the prior year. Non-GAAP earnings fell 51% year-over-year to $0.51 per share, driven by a massive contraction in the company's margins on account of inventory adjustments and lower average selling prices (ASPs) of graphics cards.

The guidance was also disappointing. Nvidia anticipates $5.9 billion in revenue this quarter, along with an adjusted gross margin of 65%. The company's revenue guidance fell $1 billion short of Wall Street's estimates. Additionally, Nvidia's forecast for the current quarter points toward a 17% year-over-year contraction in revenue. The adjusted gross margin is expected to drop by two percentage points according to the company's guidance.

There's no doubt that Nvidia investors will be disappointed with the way things are unraveling for the once-high-flying chipmaker. But savvy investors would do well to keep an eye on the bigger picture, as the gaming weakness shouldn't last long. At the same time, Nvidia's latest earnings conference call revealed that it is making terrific progress in an area that could supercharge it in the long run.

The cloud gaming business is taking off

Nvidia CFO Colette Kress said on the conference call that its GeForce Now cloud gaming service has more than 20 million subscribers. This was the only reference Kress made to the cloud gaming business on the call, but investors shouldn't miss the significance of this number.

Nvidia had 10 million GeForce Now subscribers in April 2021. The rapid growth of Nvidia's cloud gaming service isn't surprising, as it gives gamers the ability to play resource-intensive games without having to shell out money on expensive hardware. In cloud gaming, games are run remotely in data centers and are transmitted to users' devices with the help of a fast internet connection.

This eliminates the need for high-end gaming hardware, as even gamers with underpowered devices can play high-end games this way. For example, gamers can subscribe to Nvidia's GeForce Now RTX 3080 membership for $19.99 a month. This subscription will allow them to stream games from servers powered by the company's RTX 3080 graphics cards, which have a starting price of $700.

Users can play games in quad-high definition (1440p) resolution at 120 frames per second on their PCs using this membership without having to spend a ton on hardware or the gaming title. The convenience of cloud gaming has made this concept a hit among gamers.

According to a survey of U.S. gamers commissioned by Amdocs earlier this year, 62% of gamers are either using cloud gaming services or intend to. What's more, 78% of the gamers surveyed were willing to pay $10 a month for cloud gaming, while 44% would be willing to pay $20 a month if they could get a bundled 5G connection with the service. What's more, a whopping 82% of the respondents were willing to give up on purchasing gaming hardware and adopt cloud gaming.

All of this explains why the cloud gaming market is expected to hit $22 billion in revenue by 2030, compared to just $244 million in 2020, growing at a compound annual rate of 57%. Nvidia is in a solid position to take a big chunk out of this $22 billion opportunity. Let's see why.

Nvidia can cash in

Newzoo estimates that there were an estimated 21.7 million paying subscribers for cloud gaming in 2021. The number of paying users is expected to nearly triple to 58.6 million by 2024. That means Nvidia has already built a solid position for itself in the cloud gaming space, as its impressive subscriber base gave it an estimated market share of over 60% last year. What's more, Nvidia's revenue share of the cloud gaming space also stood at an estimated 60% in 2021.

Nvidia is taking steps to ensure that it maintains its dominance over this space. One way of doing that is by consistently expanding its cloud gaming library. The company added 80 new titles to the GeForce Now library last quarter, including popular games such as Genshin Impact and Mass Effect Legendary Edition. The service now has more than 1,350 titles, indicating that Nvidia is adding games to its library at a nice pace -- the service had 1,000 titles a year ago.

So if Nvidia can maintain its dominance over the cloud gaming market by the end of the decade -- which it seems capable of given its leading position in the gaming graphics card market, as well as its expanding library -- it could clock terrific revenue growth from this segment in the long run. For instance, even a 50% share of the cloud gaming market in 2030 could help Nvidia clock $11 billion in revenue from this space considering the $22 billion opportunity on offer.

That would be a big jump over the $1 billion revenue that Nvidia reportedly generated from GeForce Now last year, giving investors yet another reason to be upbeat about the long-term prospects of this tech giant despite the near-term headwinds.