Nvidia (NVDA 0.84%) and Advanced Micro Devices (AMD +1.70%) are having a brutal year on the market thanks to weak personal computer (PC) sales that have hurt the demand for graphics cards and processors. Both stocks have lost over 50% of their values so far in 2022, but an emerging opportunity could help them recover from the current slump.
While the demand for traditional gaming hardware and software may remain muted in the near term because of inflation, there's one niche within this market that's growing at a terrific pace -- cloud gaming. The cloud gaming market reportedly generated just $1.7 billion in revenue last year, but it could generate over $40 billion in revenue by 2029, growing at an average of more than 43% per year over the forecast period.
NASDAQ: NVDA
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This rapid rise in the adoption of cloud gaming isn't surprising, as it provides a cheaper alternative for gamers to play their favorite titles. In cloud gaming, games are run on remote servers and are delivered to smartphones, tablets, televisions, or PCs with a high-speed internet connection. Users simply need to buy a subscription to a cloud gaming service such as Nvidia's GeForce Now and have a fast internet connection to start playing.
As a result, gamers don't need to invest in expensive gaming hardware, nor do they need to spend money on buying titles. The cost-effective nature of cloud gaming is the reason why this market is expected to take off big time in the future. Nvidia and AMD are two companies that could make the most of this opportunity, but which one is the better bet? Let's find out.
Nvidia is already a major player in cloud gaming
Nvidia's GeForce Now is the most popular cloud gaming service, with more than 20 million subscribers, as reported by the company on its August earnings conference call. That's a big jump over February 2020, when the service was made generally available to the public with a 1-million-strong subscriber base.
The rapid growth of Nvidia's GeForce Now cloud gaming service can be attributed to the company's efforts of aggressively expanding its library, as well as making the service available in more regions across the globe. The service boasts an extensive library of titles. It had more than 1,000 titles available for streaming in July last year, and the continuous expansion of its library means that gamers now have more choices.
Also, Nvidia has two paid subscription tiers for the service, priced at $9.99 a month and $19.99 a month, giving gamers access to games in high resolution and features such as ray tracing. The combination of a solid content library and affordable costs is the reason why Nvidia is the No. 1 player in the cloud gaming market.
Newzoo estimates that the cloud gaming market could have 31.7 million paying users by the end of 2022, indicating that Nvidia already conquered a sizable portion of the market. What's more, the company generated an estimated $1 billion in revenue from this market in fiscal 2022, indicating that it already cornered a commanding portion of the revenue opportunity available in this space.
All this indicates that Nvidia is in a solid position to tap the $40 billion long-term revenue opportunity in cloud gaming. This could allow the chipmaker to inject life into its gaming business, which is currently in a state of decline thanks to the dependence on sales of hardware such as graphics cards. As such, don't be surprised to see Nvidia's gaming revenue take off substantially in the future as new catalysts, such as cloud gaming, gain critical mass and supercharge the company's growth.
AMD is focusing on the hardware side, but that may not be enough
While AMD doesn't have a cloud gaming service of its own like Nvidia, it does provide hardware to others for powering their cloud gaming initiatives. For instance, AMD was selected by Alphabet to power the Google Stadia cloud gaming service, providing the latter with data center GPUs (graphics processing units) as well as software development tools.
NASDAQ: AMD
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So, AMD plunged into the cloud gaming space before Nvidia formally made GeForce Now generally available to customers. Sadly, Alphabet is winding down the Stadia streaming service, indicating that Nvidia's solid position in this market has left little space for even bigger rivals to flex their muscles.
Nvidia is relying on its own GPUs -- such as the RTX 3080 -- to power GeForce Now. Additionally, the company is successfully building a subscription service and a predictable stream of revenue using the same.
Of course, the cloud gaming market is in its nascent stages right now and is yet to gain critical mass, so there is time for AMD to take a chunk out of this emerging video gaming niche. But Nvidia looks like the better bet for investors who are looking to take advantage of this space.
