Who Will Win the GPU Battle This Year?

Every year, NVIDIA (NASDAQ: NVDA) and Advanced Micro Devices (NASDAQ: AMD) release new and better graphics processing units (GPUs) designed to win shares of gamers' wallets. The two companies have a duopoly on the graphics card market, but NVIDIA has dominated since 2005, particularly at the high end of the performance scale.

Team Green has built a reputation for delivering GPUs that offer competitive performance while requiring less power and providing better cooling. On the other side, AMD's cards generally require more power and generate more heat -- two things that can drag on performance when users are gaming.

AMD has put up a good fight against NVIDIA at the budget end of the price spectrum, where the choice between the two brands usually comes down to personal preference, as there are only marginal performance differences between their GPUs.

Jon Peddie's most recent Q4 2018 add-in board report showed NVIDIA picking up significant market share. While both companies experienced a deceleration in GPU sales in late 2018 as a result of the collapse of the cryptocurrency market, AMD was worse off. Its market share fell to 18.8%, down from 25.7% in the previous quarter.

Meanwhile, NVIDIA's share jumped to 81.2% following the launch of its Turing RTX graphics cards in the third quarter. We'll look at where both companies stand with their GPU lineup and whether AMD can claw back some of that lost market share in 2019.

Where they stand

Given NVIDIA's consistent lead in innovation over the years, AMD has chosen to compete largely in the middle tier by delivering competitive performance at more affordable prices than NVIDIA's comparable cards.

Currently, AMD's Radeon RX 580 and Radeon RX 570 are generally seen as the best cards for gamers on a budget. However, earlier this year, NVIDIA launched the GeForce GTX 1660 Ti based on its new Turing architecture, which offers ray tracing -- a technology that renders light and shadow more realistically in games. For about the same price as AMD's Vega cards, the GTX 1660 Ti offers gamers best-in-class performance at the mid-tier range, but with the added benefit of having a future-proof technology with its ray tracing capability.

As of now, AMD doesn't have a technology to compete with NVIDIA's ray tracing cards, which could prove to be a major problem for it in the short term. Team Red's most powerful card is currently the Radeon VII -- the first gaming GPU featuring a small 7-nanometer chip. While the Radeon VII has performed better in tests than NVIDIA's Turing RTX 2080 on 4K resolution screens, the RTX 2080 still has the best performance for 1080p and 1440p displays. So, as with the mid-tier offering, the choice for gamers will come down to individual preference -- price vs. performance.

Consistent with how these two companies have been competing lately, AMD has positioned the Radeon VII to compete with NVIDIA's high-end offering mainly on price. Gamers who want the best performance will likely opt for NVIDIA's RTX 2080 or the beefier 2080 Ti -- the most powerful card on the market.

What to expect with AMD's Navi GPUs

AMD is set to launch its next round of 7-nanometer gaming cards -- which feature much smaller chips than NVIDIA's 12-nanometer Turing cards -- as early as July. The Navi GPUs are expected to be priced below the $699 Radeon VII, which means they are likely intended to compete directly with NVIDIA's RTX 2060 ($399) and 2070 ($499).

AMD claims that Navi will outperform the RTX 2070 by 10%, which is nothing to be excited about, especially as the company's benchmark was based on the card's performance running one game (Strange Brigade) that is not representative of most of the big-budget titles that are popular right now.

Overall, it's looking like the Navi GPUs will do for AMD what its Vega launch did in 2017 -- give it a hardware offering that catches up to NVIDIA's latest GPUs, but doesn't beat them.

The issue for AMD is that it lost significant market share in Q4 2018, and it doesn't have an answer -- at least not yet -- to NVIDIA's ray tracing technology. There aren't many games on the market currently that support ray tracing, but that will change.

The most widely used software programs that are used to make games recently announced support for ray tracing, including Epic Games, Unity, and Unreal Engine. This establishes NVIDIA's Turing cards as the gold standard for the gaming industry.

NVIDIA will likely remain on top

AMD needs a strong second half performance. However, this year could resemble 2017, when NVIDIA launched an updated version of one of its Pascal cards (the GTX 1070 Ti) which countered AMD's move to go after a piece the high-end market. AMD's market share was 33.7% in Q4 2017 after it made gains with its Vega cards.However, it gave all of those gains back during 2018 as NVIDIA released updates to its GTX 10-series lineup.

It's a good bet that NVIDIA will counter AMD with updates to its RTX cards later this year, bumping up their memory bandwidth and perhaps cutting prices on some models to be competitive with AMD's Navi lineup.

AMD may gain market share in the coming months, but by the end of the year, NVIDIA should still be in the lead.

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John Ballard owns shares of NVIDIA. The Motley Fool owns shares of and recommends NVIDIA. The Motley Fool has a disclosure policy.