Nvidia's Gaming Business Could Be in Trouble

Globe and Mail

5 days ago

Graphics processing unit (GPU) giant Nvidia (NASDAQ: NVDA) now generates most of its revenue from data center GPUs aimed at artificial intelligence (AI) workloads. In the fourth quarter of fiscal 2025, the data center segment produced $35.6 billion in revenue compared to just $2.5 billion for the gaming segment.
Given the monstrous growth in AI accelerator demand and Nvidia's complete dominance of that market, it makes sense for the company to prioritize its data center business. However, there's a downside. Nvidia's gaming GPU business isn't getting the attention it needs, and the end result could be significant market share losses to rival AMD (NASDAQ: AMD).
Major software problems
Putting out solid, capable hardware is only half the battle. Gaming GPUs also require software drivers that ensure good performance with minimal bugs across a wide range of old and new games. Buggy software was the main reason Intel 's first attempt at discrete graphics cards largely fell flat.
Nvidia now seems to be falling into the same trap. Reports of instability, crashes, and bugs related to Nvidia's drivers have been piling up this year. The recent launch of the RTX 5060, a midrange graphics card that starts at $299, has only escalated the situation. So far, reviews of the RTX 5060 have been borderline disastrous. The affordable graphics card will be a tough sell due to Nvidia's driver issues.
In Rock Paper Shotgun's RTX 5060 review, the new graphics card experienced crashes, severe frame rate drops, and other performance anomalies. In some cases, using Nvidia's AI-powered DLSS frame generation feature would result in worse performance. Nvidia has been pushing that feature hard to bump up perceived frame rates in games, so the DLSS troubles are particularly embarrassing.
Another problem is the meager 8 gigabytes (GB) of VRAM included. In Techspot's review, the RTX 5060 runs into problems at higher resolutions in certain games, losing badly in some cases to last-gen cards with more VRAM. In light of AMD's upcoming Radeon 9060 XT, Techspot called the RTX 5060 "dead on arrival." Ouch.
AMD could win some serious market share
AMD plans to launch its Radeon 9060 XT on June 5. Two versions will be available: an 8 GB variant for $299 and a 16 GB variant for $349. While the cheaper version will run into some of the same problems as the RTX 5060, the 16 GB version could end up being a big winner among gamers on a budget who are looking to upgrade.
Nvidia's driver debacle is a gift for AMD as it looks to steal away market share. Nvidia's GPU market share was as high as 90% in the third quarter of 2024, so the company has plenty to lose. For the vast number of PC gamers using older Nvidia GPUs, the RTX 5060 won't look enticing based on the negative reviews. If AMD's 9060 XT fares better with reviewers, customer loyalty may not be enough to keep gamers in Nvidia's camp.
Given how much revenue and profit Nvidia's data center GPUs are generating, even meaningful market share losses in the gaming segment won't matter much. It would be a much bigger deal for AMD, which has been struggling with declining gaming sales. If AMD can take advantage of Nvidia's apparent disinterest in the gaming business, the company could get a nice revenue boost this year.
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Timothy Green has positions in Intel. The Motley Fool has positions in and recommends Advanced Micro Devices, Intel, and Nvidia. The Motley Fool recommends the following options: short May 2025 $30 calls on Intel. The Motley Fool has a disclosure policy.