Advanced Micro Devices (NASDAQ:AMD) has notched another win: Microsoft (NASDAQ:MSFT) recently announced that its next-generation Xbox gaming console — due to hit the market late next year — will be powered by AMD’s semi-custom chips. That decision effectively ends NVIDIA‘s (NASDAQ:NVDA) chances of benefiting from the rising popularity of gaming consoles.
This doesn’t come as a surprise. There were rumors that Microsoft was on course to once again choose AMD chips for the Xbox. Sony, meanwhile, had already confirmed that it will be using an eight-core AMD chip based on a 7-nanometer manufacturing process, as well as the company’s Navi-based graphics processor, in the next PlayStation.
These two wins will give AMD a nice shot in the arm in the long run, and put it in a great position to take advantage of a shift in gaming hardware preferences — something NVIDIA now risks missing out on.
A temporary demand surge dissipates
NVIDIA and AMD have made a ton of money for themselves and for investors by selling graphics cards to gamers. But the graphics processing unit (GPU) market isn’t as profitable as it once was.
The last major catalyst for GPU sales was cryptocurrency mining. GPUs are built to perform specific types of repetitive tasks like rendering video at a much faster rate than more-flexible CPUs (central processing units), which makes them ideal for mining digital currencies such as bitcoin. Miners intent on reaping the benefits of rising cryptocurrency prices sent the GPU market into short supply. But once the crypto bubble burst, GPU prices came crashing down as demand slumped.
This has hurt the financials of both NVIDIA and AMD in recent quarters, though the latter has fared better thanks to a diversified business that includes CPUs. Looking ahead, it…