Nvidia Stock Analysis: Why Nvidia Is Likely To Maintain Its GPU Leadership

  • AMD has lately been providing a credible challenge to Nvidia's dominance in gaming GPUs
  • Both Nvidia and AMD recently launched high-performance but low-cost GPUs
  • Nvidia, however, managed to launch its GTX 980 Ti a few days prior to AMD's launch, which might have forced AMD to lower its price points to match those of Nvidia
  • It does not appear likely that AMD will be able to wrestle much market share from Nvidia due to its limited R&D resources compared to Nvidia's
Nvidia Stock Analysis

Nvidia (NASDAQ: NVDA) has for long been the market leader in high-end discrete GPUs (Graphic Processor Units). Nvidia owns about 76% of the discrete GPUs market. About 82% of Nvidia revenue comes from selling gaming GPUs.

Despite a weak PC market, Nvidia’s PC GPU sales have been growing in double digits and helping the company stave off weaknesses in other segments. The company’s gaming GPUs revenue grew 38% mainly due to the popularity of Nvidia’s Maxwell architecture. Maxwell is Nvidia’s 10th generation GPU architecture that offers much better performance than the previous generation Kepler architecture.

Note: You might also be interested in our Nvidia Stock Analysis video

More Competition from AMD

Despite its dominance in the space, Nvidia has increasingly been facing more competition from Applied Micro Devices (NASDAQ: AMD). AMD is a formidable rival due to its technical expertise in graphic cards and its ability to cut prices to the bone. AMD recently launched the much-hyped low-priced HBM-capable Fury GPUs selling at $649 and $549. That’s considerably cheaper than the $1,500 AMD used to charge for Radeon 390X, whose popularity was mainly driven by bitcoin mining communities as opposed to traditional gaming communities. But demand for the card has petered out and AMD has been forced to slash prices.

Nvidia unveiled GTX 980 Ti a few days prior to AMDs announcement in a preemptive strike against AMD. GTX 980 Ti sells for $649, significantly cheaper than Nvidia’s popular high-end Titan X which sells for $999. AnandTech tests have revealed that GTX 980 Ti specs almost match those of Titan X, the only difference being a small 3% performance gap. This appears to be a rather bizarre move by Nvidia considering Titan X was launched just a few months ago and then now comes along GTX 980 Ti with almost similar specs but retailing at much lower cost. No official performance benchmarks of the AMDs new Fury GPUs are available as yet, though early indications are that the new graphic cards offers a performance comparable to Titan X and GTX 980 Ti. The move by Nvidia effectively forced AMD to launch its Fury GPUs at price points that were way lower than what was earlier anticipated.

The fact that Nvidia can comfortably take on AMD in graphics cards price wars is likely to cement its leadership in the space. This has denied AMD a chance to use that ammunition to grab back some of the market share it has lost to Nvidia in recent times. But, there is another big reason why Nvidia can continue to dominate this market.

Nvidia Now Has More R&D Cash

Nvidia recently took a rather drastic move when it said it will discontinue its 4G/LTE cellular baseband operations and is searching for a buyer for its Icera baseband division. Nvidia simply lacked sufficient integration capabilities including GPS, Bluetooth and Wi-Fi capabilities to help it compete on an even keel with mobile titans such as Qualcomm (NASDAQ:QCOM), Mediatek and Spreadtrum.

The move means that Nvidia will be saving a significant amount of cash it was spending on baseband R&D. Nvidia has never revealed the exact figures of the amount of money it spends on baseband chip R&D. The company, however, has said it spends $600 million every year on Tegra R&D. Tentative estimates are that the company spent $300 million-$400 million on baseband chips every year. The company can now channel this cash to build state-of-the-art GPU products to help it maintain its market leadership.

Meanwhile AMD’s cash flow has continued on its journey south with its losses mounting. Trying to catch up with Nvidia will be an uphill battle for AMD. AMD is reportedly mulling over separating its graphics and licensing business from its server business. It’s not clear what benefits the company will achieve from the spinoff since the combined entity appears to create synergies that help it to create integrated products including embedded systems, CPUs, GPUs, APUs and SoCs. As things stand right now, it appears highly unlikely that AMD can create any serious challenge for Nvidia in the GPU segment.

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