If I were a NVIDIA (NASDAQ:NVDA) shareholder today (which I'm not, and never have been), I'd be shaking in my boots.

Chief rival Advanced Micro Devices (NYSE:AMD), via its ATI subsidiary, has introduced a brand-new graphics chip in the market's sweet spot of less than $100, where two-thirds of all graphics-crunching chip sales happen. Early reviews overwhelmingly say that NVIDIA has nothing in its modern lineup that could compete with AMD's new chip, and the older products that could compete are too outdated and expensive to manufacture to last for long.

The Radeon 5670 is the first sub-$100 graphics product to support the version of DirectX programming that came with Microsoft's (NASDAQ:MSFT) Windows 7. So far, NVIDIA has no support for that technology at all. AMD's chip runs modern games faster than the closest NVIDIA equivalent, known as the GeForce 240 GT, while only slightly trailing or being equal with NVIDIA's finest low-budget chip in terms of power use, noise levels, and system temperatures.

In the words of longtime industry observer Charlie Demerjian, "ATI has no competition for the time being. NVIDIA can't match the cost, features, or anything else. ATI has a clean kill with this part." That's bad news for a company that makes more than half of its sales in the consumer graphics-chip segment. Meanwhile, NVIDIA is crossing lawsuits with Intel (NASDAQ:INTC) and perhaps giving up on the system chipset market that accounted for another 16% of sales in the last year. What's left? The mobile device market? I'm not sure that's good enough.

NVIDIA CEO Jen-Hsun Huang claims to have demand for more chips than he can supply, but you have to wonder how long that imbalance will last in the new competitive landscape. And this weakness comes at a very inconvenient time for NVIDIA: Market research firm Gartner says that demand for new computers is exploding worldwide, with heavy shipment increases for market leaders like Apple (NASDAQ:AAPL) and Hewlett-Packard (NYSE:HPQ). Despite year-over-year shipment gains that substantially trailed its peers, even Dell (NASDAQ:DELL) showed healthy growth. It would be a shame to miss out on this exciting market opportunity because of disappointing products.

Until NVIDIA shows that it can design a cost-effective performer in this critical low-end sector, I can't help but wonder whether chip giant Intel might swoop in and buy the flailing graphics expert at long last, if the government would allow it. Intel's manufacturing expertise and massive research department could be just what NVIDIA needs in order to become a competitor again. In any case, NVIDIA’s next-generation Fermi architecture can't come soon enough for its beleaguered lineup.

That's my take. What's yours? The comments box is waiting for your input below.

Fool contributor Anders Bylund owns shares in AMD, but he holds no other position in any of the companies discussed here. Intel and Microsoft are Motley Fool Inside Value recommendations. Apple and NVIDIA are Motley Fool Stock Advisor picks. Motley Fool Options has recommended buying calls on Intel and diagonal calls on Microsoft. Try any of our Foolish newsletters today, free for 30 days. You can check out Anders' holdings and a concise bio if you like, and The Motley Fool is investors writing for investors.