Nvidia just made a smart move that could further boost its gaming business

Nvidia‘with (NVDA -0.57%) The video game business has been in bad shape over the past year as demand for graphics cards used in personal computers (PCs) plummeted after two solid years of growth in 2020 and 2021. However, there is one emerging niche in the gaming business where the company is doubling down despite the winds in this segment.

The chipmaker recently announced that it is bringing its RTX 4080 graphics cards to GeForce Now — Nvidia’s cloud gaming service. Let’s take a look at why this could be a big deal for the company in the long run.

Nvidia is pushing the boundaries in cloud gaming

The RTX 4080 is one of Nvidia’s top-of-the-line graphics cards that brings a huge improvement over its predecessor, the RTX 3080. Gamers can now stream RTX 4080-powered titles to their devices and play high-end games without having to invest in expensive hardware. That’s because cloud gaming allows players to easily stream games to their local device — which could be a PC, smartphone, or television (TV) — over the Internet while processing is done in remote data centers.

Now that Nvidia is equipping its cloud gaming servers with RTX 4080 graphics cards, gamers can stream and play resource-intensive games even on less powerful devices. The company promises that its RTX 4080-class cloud gaming servers can deliver five times better graphics performance than MicrosoftXbox Series X consoles and 1.75x better performance compared to the previous generation RTX 3080-class cloud gaming server.

What’s more, Nvidia says that GeForce Now users who opt for RTX 4080 class membership will be able to experience “true PC gaming – streaming up to 240 frames per second from the cloud with full ray tracing and DLSS 3.” That would be a big jump from the RTX 3080-class GeForce Now membership, which delivered games at 120 frames per second on PCs and MacBooks.

Nvidia offers RTX 4080-class cloud gaming with a GeForce Now Ultimate membership, priced at $19.99 for a monthly subscription and $99.99 for a six-month subscription. With the RTX 4080 graphics card alone starting at $1,199, gamers looking to play high-end titles without breaking the bank are getting a good deal.

So it won’t be surprising to see more cloud gamers flock to GeForce Now after Nvidia’s latest move, especially at a time when high inflation and the possibility of a recession could further hurt physical graphics card sales. Cloud gaming subscriptions are significantly cheaper, which could work in Nvidia’s favor.

It’s also worth noting that the company had 12 million GeForce Now subscribers before it launched its previous-generation RTX 3080-class cloud gaming subscription in October 2021. That number grew to 20 million — a 66% jump — within one year from the launch of the RTX 3080 membership level in August 2022. And now that Nvidia is pushing the boundaries by upgrading its cloud gaming performance, it won’t be a surprise to see the company maintain great growth in this fast-growing niche that could boost its long-term growth.

Investors should also note that gamers can subscribe to GeForce Now starting at $9.99 per month or $49.99 for six months for a Priority membership. However, there are limitations as the priority level limits game streaming to 1080p resolution and a frame rate of 60fps. Moreover, Nvidia offers a huge library of 1,500 games on GeForce Now, which gives gamers another big reason to choose this service.

This could become a huge job

The global cloud gaming market is estimated to have generated just $2.4 billion in revenue last year. That’s a whopping 74% increase from 2021, according to estimates by video game and esports analytics and market research provider Newzoo. The company also points out that the cloud gaming market had an estimated 31.7 million subscribers at the end of 2022.

If that’s indeed the case, Nvidia has already captured a nice chunk of the market since hitting 20 million GeForce Now subscribers last August. Specifically, Nvidia may already control more than two-thirds of the cloud gaming space based on the size of its subscriber base, as estimated by Newzoo.

This puts the company in an excellent position to capitalize on cloud gaming, a space that is expected to see a healthy annual growth rate of 47.5% through 2028 and generate nearly $14 billion in revenue at the end of the forecast period. Nvidia’s continued dominance in this market could help the company make billions of dollars from cloud gaming.

To put things into perspective, Nvidia generated $7.2 billion in gaming segment revenue in the first three months of fiscal 2023, which points to an annual revenue rate of $9.6 billion. So cloud gaming could prove to be a significant growth driver for Nvidia, given the potential end-market offering and the dominant position the company has already built for itself.

All in all, it’s safe to say that cloud gaming could bring a much-needed boost to Nvidia after a terrible year for graphics card sales. And that could ultimately help get these battered tech stocks back on track.

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

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