Nvidia's (NVDA +0.87%) video gaming business has been in bad shape over the past year as the demand for graphics cards used in personal computers (PCs) has dropped sharply after two solid years of growth in 2020 and 2021. However, there's one budding niche within the gaming business where the company is doubling down despite the headwinds in this segment.
The chipmaker recently announced that it is bringing its RTX 4080 graphics cards to GeForce Now -- Nvidia's cloud gaming service. Let's see why this could be a big deal for the company in the long run.
NASDAQ: NVDA
Key Data Points
Nvidia is pushing the envelope in cloud gaming
The RTX 4080 is one of Nvidia's top-of-the-line graphics cards that brings about a huge improvement over its predecessor, the RTX 3080. Gamers can now stream titles powered by the RTX 4080 to their devices and play high-end games without having to invest in expensive hardware. That's because cloud gaming enables gamers to simply stream games to their local device -- which could be a PC, smartphone, or a television (TV) -- over the internet while the processing is done by remotely located data centers.
Now that Nvidia is equipping its cloud gaming servers with RTX 4080 graphics cards, gamers can stream and play resource-intensive games even on their underpowered devices. The company is promising that its RTX 4080 class cloud gaming servers can deliver five times the graphics performance of Microsoft's Xbox Series X console and 1.75x the performance of its previous generation RTX 3080 class cloud gaming servers.
What's more, Nvidia says that GeForce Now customers opting for the RTX 4080-class membership will be able to experience "true PC gaming -- streaming at up to 240 frames per second from the cloud with full ray tracing and DLSS 3." That would be a big bump over the RTX 3080-class GeForce Now membership tier that delivered games at 120 frames per second on PCs and MacBooks.
Nvidia is offering RTX 4080 class cloud gaming with the GeForce Now Ultimate membership tier, priced at $19.99 for a monthly subscription and $99.99 for a six-month subscription. Given that an RTX 4080 graphics card alone starts at $1,199, gamers looking to play high-end titles without breaking the bank are getting a good deal.
So, it won't be surprising to see more cloud gamers flock toward GeForce Now after Nvidia's latest move, especially at a time when high inflation and the possibility of a recession could hurt sales of physical graphics cards further. A cloud gaming subscription is substantially cheaper, and this could play in Nvidia's favor.
It is also worth noting that the company had 12 million GeForce Now subscribers before it launched its previous generation RTX 3080-class cloud gaming subscription in Oct. 2021. That number grew to 20 million -- a jump of 66% -- within a year of the launch of the RTX 3080 membership tier in August 2022. And now that Nvidia is pushing the envelope further by upgrading its cloud gaming performance, it won't be surprising to see the company maintain terrific growth in this fast-growing niche that could supercharge its long-term growth.
Investors should also note that gamers can subscribe to GeForce Now starting at $9.99 per month or $49.99 for six months for the Priority membership tier. There are limitations, however, as the Priority tier limits game streaming to a 1080p resolution and a frame rate of 60 frames per second. Moreover, Nvidia is offering a huge library of 1,500 games on GeForce Now, which gives gamers another big reason to go for this service.
This could become a huge business
It is estimated that the global cloud gaming market generated just $2.4 billion in revenue last year. That's a massive increase of 74% over 2021, according to estimates from video games and esports analytics and market research provider Newzoo. The firm also points out that the cloud gaming market had an estimated 31.7 million paying subscribers at the end of 2022.
If that's indeed the case, Nvidia has already cornered a nice chunk of the market since it had 20 million GeForce Now subscribers in August last year. More specifically, Nvidia may already be controlling over two-thirds of the cloud gaming space based on the size of the paying subscriber base, as estimated by Newzoo.
This puts the company in a terrific position to capitalize on cloud gaming, a space that's expected to clock a healthy annual growth rate of 47.5% through 2028 and generate almost $14 billion in revenue at the end of the forecast period. Nvidia's sustained dominance of this market could help the company mint billions of dollars from cloud gaming.
To put things in perspective, Nvidia has generated $7.2 billion in revenue from the gaming segment in the first three months of fiscal 2023, which points toward an annual revenue run rate of $9.6 billion. So, cloud gaming could turn out to be a substantial growth driver for Nvidia, given the potential end market opportunity on offer and the dominant position that the company has built for itself already.
In all, it can be said that cloud gaming could bring a much-needed boost for Nvidia following a terrible year of graphics card sales. And it could ultimately help bring this beaten-down tech stock back on track.
