Advanced Micro Devices (NYSE:AMD) has had an impressive run after the announcement of earnings for the first quarter, which gave a pleasant surprise to the market - the stock is up about 14% during the last five days. One of the most important markets for the company going forward will be the graphics market. This market is growing at an exceptional rate and the company reported year-over-year growth of about 118% in this segment. We understand that the other segments of the market are also important for the company. However, the scope of this article will only be the graphics segments and the expected growth for AMD. The company is competing with Nvidia Corporation (NASDAQ:NVDA) in the graphics and visual segment, and both these companies are fighting it out for market share with next generation graphics cards.
AMD: Changing the Visual Realm
Over the last few years, the industry is shifting to a new computing paradigm that increasingly relies on graphics processing units (GPUs). As a result, the manufacturing companies have been spending substantial amounts of cash in order to have a better product than rivals. AMD's newest launch, Radeon R9 295X2, is expected to be a game changer for the company. The GPU market is making a strong recovery with PC sales also stabilizing. AMD is the second major player according to the market share behind Intel (NASDAQ:INTC) with market share of 18.3% - Intel holds over 65% of the market share, and is by far the largest player in this market.
The growing rivalry in the graphics and visual gear industry is creating a thin margin for competing rivals. However, the growing complexity of visual processors and the associated research and development costs represent an increasingly higher barrier to entry in the market. In our previous article, we have discussed the expected competition between AMD's Radeon R9 295X2 and the Nvidia Titan Z, successor of the famous Titan Series, in detail. However, AMD has taken a lead in this battle by introducing the fastest graphics card at a considerably lower price than Nvidia. Moreover, the excessive price tag of Nvidia's Titan successor is itself becoming a problem for its potential customers who could use two Nvidia GTX 780Ti cards using the same nanostructure technologies (GK110 chipset) as its overpriced big brother for half the price.
Nevertheless, according to benchmark testing between Radeon R9 295X2 and Nvidia GTX 780Ti, AMD takes a 4% performance lead over Nvidia, which will allow the users to shift their focus toward Radeon, which is priced $100 more than the aforementioned Nvidia GTX graphic card combination. On top of that, the gaming console market along with API specification coding applications has become an important market for the AMD graphics business segment. The recent usage of AMD's Jaguar CPU cores and next generation Radeon graphics in Sony PlayStation 4 gaming console systems as well as Xbox One's SOC (System on a chip) will multiply the future growth prospects for the company.
AMD's Next Big Step: 4K Graphical Experience
Nowadays, 4K technology displays are becoming more common with personal as well business customers. AMD has also announced the new AMD FirePro W9100 graphics card. The card has the first ever 16GB GDDR5 ultra-fast on board memory with over 2 TLOPS of double precision performance and 4K multi display support that professionals need to develop the next generation realm for the visual experience. However, the personal customers can experience the 4K display graphics with Radeon R9 295X2. Moreover, in the increasing trend of 4K displays in the coming era currently there is only one graphics card capable enough to stream the visual array, giving AMD a strong competitive advantage over its rivals.
The decline of the PC market has contributed heavily toward the poor performance of the companies operating in the sector. However, a stabilizing PC market and the growing gaming and GPU market is a huge encouraging sign for this sector. AMD is coming up with some impressive products, which will allow the company to compete well in this highly-competitive segment of the market. These products should allow the company to capture a larger market share and grow its revenues. Furthermore, the gaming consoles segment will also be a major contributor for AMD going forward, and the overall market share of the company will be enhanced substantially.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Business relationship disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. IAEResearch is not a registered investment advisor or broker/dealer. This article was written by an analyst at IAEResearch and represents his/her personal opinion about the companies mentioned in the article. The article is for informational purposes only and it should not be taken as investment advice. Investors are encouraged to conduct their own due diligence before making an investment decision. I am not receiving any compensation (other than from Seeking Alpha) for this article, and have no relationship with the companies mentioned in the article.