Advanced Micro Devices (NASDAQ: AMD) has made deep inroads into rival NVIDIA's (NASDAQ: NVDA) graphics card dominance this year, recording impressive market share growth thanks to well-priced GPUs (graphics processing units) that have proved to be a hit among consumers.
NVIDIA, however, might make a comeback with its next-generation graphics cards that are expected to be much faster than the current ones, though AMD won't be giving its bigger rival a free run. As a result, the discrete GPU market is all set to witness a tough fight for supremacy between AMD and NVIDIA later this year as both companies upgrade their architecture.
But there is one area where AMD is expected to go virtually unchallenged, and that market is estimated to enjoy terrific growth next year.
AMD's huge console opportunity
AMD has been chosen by Microsoft and Sony to provide central processing units and custom GPUs for their upcoming consoles. NVIDIA has missed this train and that could be a huge win for AMD. The console graphics hardware market is expected to generate $17.3 billion in revenue next year, according to Jon Peddie Research -- a jump of nearly 39% over 2020's estimated sales.
The sharp spike in console graphics sales expected next year is not surprising as the PlayStation 5 and the Xbox Series X are scheduled to go on sale during the holiday period this year. The launch of the new consoles is expected to trigger a massive upgrade cycle and boost the size of the console graphics market.
Of course, NVIDIA also has a stake in the console graphics market as it supplies chips for Nintendo's Switch gaming console. But AMD holds greater sway here as Sony's PlayStation 4 and Microsoft's Xbox One have a combined market share of 74% in consoles. This means that AMD can corner more of the incremental console graphics revenue that Jon Peddie Research is estimating in 2021, which could give it an edge over NVIDIA in the battle for GPU supremacy. Let's see why.
Tough fight for NVIDIA in PC gaming
Jon Peddie Research predicts that sales of PC gaming graphics hardware will remain roughly flat next year. PC graphics hardware revenue is expected to come in at $35.6 billion in 2021 as compared to $35.9 billion this year.
AMD can hurt NVIDIA here if its upcoming graphics cards based on the RDNA2 microarchitecture can deliver the improvements that the chipmaker is promising. AMD claims that its next-generation graphics cards could deliver a 50% improvement in performance-per-watt as compared to the existing cards.
The claimed improvements are in line with the gains AMD had seen during its last generational leap from the GCN (Graphics Core Next) architecture to the existing RDNA architecture. So it won't be surprising if it manages to replicate that performance once again.
On the other hand, NVIDIA's Ampere-based graphics cards are also expected to deliver 50% performance gains and cut power consumption by half as supply chain rumors indicate. So AMD and NVIDIA are all set to go toe-to-toe later this year when their new cards hit the market. It remains to be seen how that contest will play out, but AMD will have a safety net and an additional revenue opportunity thanks to its dominant presence in the console market.
As a result, AMD seems to have an edge over NVIDIA in the next leg of the battle for gaming hardware, which could help it sustain its terrific rally and remain a top growth stock.
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Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool's board of directors. Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Microsoft and NVIDIA. The Motley Fool recommends Nintendo and recommends the following options: long January 2021 $85 calls on Microsoft and short January 2021 $115 calls on Microsoft. The Motley Fool has a disclosure policy.
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