Nvidia Is Crushing It in This Market (Hint: It’s Not Data Centers)

Artificial intelligence (AI) has been the driving force behind Nvidia‘s (NVDA 0.78%) stunning rally over the past two years, and that’s not surprising as the growing adoption of this technology has unlocked a new growth opportunity for the company in the form of the multibillion-dollar market for AI accelerators.

More importantly, Nvidia has established itself as the leader in AI chips with a market share of more than 85%, and it is unlikely to yield its position to rivals anytime soon, thanks to the technological advantage that it enjoys. As such, it is not surprising to see that analysts expect Nvidia’s data center business to grow at a remarkable pace over the next few years and give the company a massive boost.

However, there is another market where Nvidia has been crushing its rivals — gaming. In this article, we will take a closer look at how gaming and personal computers (PCs) are likely to open another lucrative growth frontier for this technology giant.

Nvidia dominates the market for PC graphics cards

Market research firm Jon Peddie Research points out that Nvidia controlled a whopping 88% of the market for discrete graphics cards that are deployed in personal computers, with the rest occupied by Advanced Micro Devices. The market for discrete PC graphics cards shot up a solid 48% year over year in the second quarter of 2024, and it is worth noting that Nvidia’s shipments grew at a faster pace of 62% from the same quarter last year.

So, Nvidia took market share away from AMD in the discrete GPU market in the second quarter of 2024, whose shipments were flat on a year-over-year basis. The impressive increase in market share is going to have a positive impact on Nvidia’s long-term prospects as the demand for PC graphics cards is expected to pick up thanks to the advent of AI.

Nvidia management pointed out on its August earnings conference call that its RTX class of PC graphics cards is already powerful enough to run AI workloads. According to CFO Colette Kress:

Every PC with RTX is an AI PC. RTX PCs can deliver up to 1,300 AI tops and are now over 200 RTX AI laptops designed from leading PC manufacturers. With 600 AI-powered applications and games and an installed base of 100 million devices, RTX is set to revolutionize consumer experiences with generative AI.

Market research firm Canalys forecasts that sales of AI-enabled PCs are set to grow at an annual rate of 44% through 2028. The researcher adds that 205 million AI-enabled PCs could be shipped in 2028, and this could open a huge opportunity for Nvidia to increase the installed base of its PC users. That’s because graphics processing units (GPUs) are the chips of choice for running AI workloads thanks to their ability to perform huge amounts of calculations on a parallel basis, which gives them massive computing power.

Nvidia claims that its RTX 40 series PC graphics cards can train AI models 30 times faster and generate images at a 13x speed when compared to PCs without an RTX GPU. As a result, the secular growth of the AI PC market should ideally open up a nice addressable opportunity for Nvidia as well.

Stronger AI PC sales could lift Nvidia’s gaming business

Gaming was Nvidia’s second-largest source of revenue in the second quarter of fiscal 2025. The company clocked $2.9 billion in revenue from this segment, an increase of 16% on a year-over-year basis. While that was way lower than the data center segment’s 154% year-over-year growth, investors should note that the AI PC market is currently in a nascent stage as only 48 million units are expected to be shipped this year.

So, there is a good chance that the jump in Nvidia’s addressable market for graphics cards thanks to the growing demand for AI PCs could help its gaming business grow at a faster pace in the future. Market research firm TechNavio estimates that the size of the gaming GPU market could increase by $49 billion between 2023 and 2028 at an annual rate of 21%.

Nvidia’s solid share of this market puts it in a nice position to make the most of this incremental revenue growth opportunity and complement the impressive growth that it is already clocking in the data center space.

Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices and Nvidia. The Motley Fool has a disclosure policy.