Graphics card leader Nvidia (NVDA -0.13%) announced new high-end graphics cards in September, the first in its new RTX 4000 series. Performance gains over Nvidia's previous-generation cards are enormous, partly due to improved software powered by artificial intelligence (AI). The RTX 4090 delivered a 55% improvement in frames per second over the RTX 3090 Ti across eight games tested by Tom's Hardware at a 4K resolution and using the highest settings.

Nvidia's new cards come at a steep price. The RTX 4090 has a launch price of $1,599, while the slower RTX 4080 is priced at $1,199. Actual prices at retail are substantially higher. On Newegg, many RTX 4090 models currently go for more than $2,000.

A lower-priced option from AMD

Nvidia's high pricing for its top-tier models opens the door for Advanced Micro Devices (AMD -1.27%) to attempt to steal away some market share. Earlier this month, AMD unveiled its own high-end graphics cards, the RX 7900 XTX and RX 7900 XT. These are the first graphics cards to use AMD's chiplet design, a modular approach that can lead to better yields, improved performance, and superior power efficiency.

Thanks to AMD's chiplet-based architecture, the company was able to use multiple process nodes for different parts of its graphics chip. The result is a 54% boost to performance-per-watt under the best-case scenario compared to AMD's previous-generation products. AI throughput has been increased by a factor of 2.7, increasingly important as AI-powered software is used to boost frame rates, and raytracing performance is as much as 1.8 times faster.

Notably, AMD's new graphics cards are far less expensive than Nvidia's new RTX 4000 graphics cards. When they launch in early December, the RX 7900 XT will have a suggested price of $899, while the RX 7900 XTX should go for $999. Actual retail prices will depend on demand.

AMD has said gamers should expect a 1.7 times performance improvement over its previous flagship graphics card in certain games at a 4K resolution. If we take that to mean that, under the best-case scenario, the RX 7900 XTX will beat the last-gen RX 6950 XT by 70%, then based on Tom's Hardware's latest performance benchmarks, AMD's new top-tier graphics card should be in the same ballpark as Nvidia's RTX 4090.

Of course, these claims come from AMD, so they need to be taken with a grain of salt. What gamers actually experience across a range of titles will vary. Given the pricing, Nvidia will likely retain the performance crown. However, the price-to-performance crown may very well be a lopsided victory for AMD, given that Nvidia's graphics cards are so much more expensive. Third-party reviews in the lead-up to the launch will shed some light on real-world performance.

A tough market

Demand for high-end graphics cards is hard to predict in the current environment. PC sales are tumbling, down nearly 20% year over year in the third quarter. Economic uncertainty and elevated inflation are taking a toll on consumers. A new gaming PC is probably not a top priority for many.

Graphics card prices have come down dramatically over the past few months as undersupply has yielded to oversupply, with demand from cryptocurrency miners essentially vanishing. One problem AMD and Nvidia may run into, especially once they start launching mainstream graphics cards in the coming months, is an excess of last-gen cards on the market. Price cuts to move that inventory would make last-gen cards more attractive, possibly cutting into demand for new cards.

AMD's graphics revenue sank in the third quarter, although the gaming segment grew, thanks to strong demand for the chips that power the major game consoles. The company doesn't expect the gaming segment to grow in the fourth quarter, meaning the graphics business will likely deteriorate further. As both Nvidia and AMD fill out their lineups of new graphics cards next year, they may be fighting over a shrinking pie, at least until the market normalizes.