I ran across an interesting article this morning that I would like to expound on. The article points out that higher memory requirements could trigger an above average number of upgrades, which could boost revenues realized by both Nvidia (NASDAQ:NVDA) and Advanced Micro Devices (NYSE:AMD) in the companies' respective graphics divisions.
Understanding Why Resolution, Along With Modern Video Games, Is Important To This Thesis
Resolutions are a function of the number of pixels, which is proportional to both a length and width component. This means that the rate at which the number of pixels increases when resolution increases changes by closer to a square factor rather than a linear number. From the graphics card point of view, this means the requirements to game at higher resolutions rise at a greater than linear rate when compared against performance.
Notice that it's usually multiple GPU setups or the more exotic cards like AMD's Radeon R9 295X2 that get recommended for Ultra-HD gaming.
As for the games themselves, Hot Hardware has an excellent guide to tuning Watch Dogs for greater performance. In this write-up, Joel Hruska notes that this particular game eats up quite a bit more memory at a given resolution.
So, currently we are seeing two affects play out:
- Higher resolutions are increasing compute and memory requirements from graphics cards
- AAA games are becoming more demanding at a given resolution. This aspect could trigger the necessity to upgrade graphics cards even for those gamers sticking with 1080p and lower.
Monitor Prices Dropping
About 2 years ago, Dell had a very nice 30" IPS monitor that was coveted by those desiring higher resolutions. However, the hefty price tag made this a very cost prohibitive upgrade to most. Note that this particular monitor is also at less than 4K resolutions.
However, today, looking at newegg shows that similar resolution and quality monitors can be had for much less than the $1500 the Dell monitor cost at launch. The Dell monitor is still to this day a very nice monitor, but now there are numerous lower cost alternatives.
More options at lower ASPs offer consumers a much better entry point into the world of greater than HD gaming.
Most Installed Hardware Today Doesn't Support Greater Than HD Gaming, Yet Trends Are Increasing Toward Higher Resolutions
AMD has typically offered more GPU RAM than Nvidia for quite some time. With Nvidia's GTX 500 series of cards, the company had some strange ram sizes: 1.2GB or 1.5GB. AMD's Radeon 6970 or 7970, for example, respectively offered either 2GB or 3GB.
1 GB cards are the most common, followed by 2 GB cards, and finally 512 MB cards. So you can see that the majority of gamers are barely equipped for gaming at 1080p using above average image quality settings.
Another interesting statistic is reported monitor resolutions.
The most popular monitor resolutions are:
Watch Dogs, for example, is one of the most popular AAA title launches in recent times. Quoting Joel's article, linked to earlier:
A check of GPU-Z and swapping to a GTX 780 (with 3GB of RAM) demonstrated why -- High Textures + Ultra Details chews up an easy 2.5GB of GPU RAM even at 1080p. High Textures + High Details still consumes about 2.1GB -- enough to send the GTX 770 into periodic paroxysms and long, stuttering pauses.
At 1080p, Watch Dogs brings even the more recent GTX 770 to its knees periodically with all settings maxed, simply because the card's frame buffer fills up.
Even for those gamers looking to simply jump from standard HD resolutions to full HD (720p to 1080p, for example), may need to look at upgrading video cards. And with Steam showing the majority of gamers still playing at less than 1080p resolutions, this is a market that appears to be pretty far from saturation.
Conclusion and Offsetting Factors
Personally, I'm not a huge fan of Nvidia at these price levels. It is my belief that we could see increased integrated graphics performance start eating further into discrete GPU shipments. Integrated GPUs already make up the vast majority of the graphics market. Also, there is some concern as to whether or not Intel (NASDAQ:INTC) will be required to renew the cross licensing agreement with Nvidia. Yet this agreement is a substantial source of profit for Nvidia. From a prior Seeking Alpha news update:
He also notes there's "considerable investor debate" on whether Nvidia's Intel royalty deal (responsible for ~30% of EPS) will be renewed beyond 2017.
On the plus side for Nvidia, the company currently enjoys a higher market share than AMD in the discrete graphics business, as well as (based on my personal calculations) slightly higher ASPs of its graphics cards. Unrelated to discrete GPUs specifically, recent announcements suggest that the Tegra K1 chip is starting to see some traction, which could boost Nvidia revenues outside of the discrete GPU market. According to Nvidia PR materials, the next iteration of the Tegra SoC should feature a Maxwell based GPU, so some of the OPEX required for GPU development could, if necessary, be accounted for in the Tegra accounting segment as well.
Moving on to AMD, AMD should be able to capitalize on the shift towards more powerful integrated graphics solution. However, this will not come without competition from Intel. And things like HBM (high bandwidth memory) could throw a massive monkey wrench in the future of the discrete GPU market. APUs, from either Intel or AMD, if given access to more memory bandwidth without ballooning ASPs of said chips, will likely change the entire GPU landscape.
Further, AMD's current lineup of cards feature SKUs with 4 GB of memory, which could help sway those that want to upgrade now. AMD also uses a much smaller die at the high end than Nvidia, allowing AMD to sell at a cheaper price than Nvidia without a commensurately large hit to margins. I suspect Nvidia still gets better margins than AMD due to the higher ASP, but AMD's margins on these products are likely quite good. And, importantly, the lower relative ASP opens up a larger TAM (total addressable market) to AMD.
But at the end of the day, both companies should stand to benefit from the need to upgrade GPUs to enjoy higher resolutions. An upgrade from 1 GB cards to 2 GB cards is a potent refresh for those wanting to game at 1080p. And for the extreme gamers, 4 GB cards should be the minimum to game at higher than 1080p resolutions.
Disclosure: The author is long AMD. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: I own both shares and options in AMD, and may add or liquidate shares or options at anytime. I also trade short term options in AMD, and may trade either short term calls or puts at anytime. I may initiate a short position in Nvidia via puts at anytime.