This Emerging Opportunity Could Boost Nvidia Shares | The Motley Fool

Nvidia (NVDA 1.32% ) Stocks could be down in 2022 as Wall Street appears concerned about the health of the company’s video game business, but closer scrutiny indicates the problems are likely to be short-lived.

Nvidia’s video game business could take off in the long term as more gamers switch to its new graphics cards used in personal computers (PCs). Meanwhile, there’s another emerging trend in the gaming space that could accelerate Nvidia’s growth: cloud gaming, which allows gamers to stream games to their PCs, Macs, or smartphones from a remote data center for a fee.

Let’s take a look at why this could be Nvidia’s next big avenue of growth.

Image source: Getty Images.

There is a huge opportunity in cloud gaming

The cloud gaming market is estimated to have generated $1.6 billion in revenue last year, according to market research firm Newzoo. The firm also points out that there were around 23.7 million paying users for cloud gaming in 2021.

A few calculations indicate that Nvidia is the biggest player in this nascent but promising market. The company pointed out at its Investor Day last month that its GeForce Now cloud gaming service has 15 million users. Nvidia therefore controls about 60% of the cloud gaming market, according to Newzoo’s estimate of the total number of subscribers this space had in 2021.

It also appears that Nvidia controls a large portion of cloud gaming revenue. The company generated $11.4 billion from gaming graphics card sales in fiscal year 2022 (ended Jan. 30). For the company, Nvidia’s overall gaming revenue in fiscal year 2021 was $12.46 billion, indicating that cloud gaming generated just over $1 billion in revenue. income for the business. Based on Newzoo’s estimate of cloud gaming market revenue in 2021, calculations indicate that Nvidia has cornered just over 60% of the revenue share of this nascent market.

Now $1 billion in cloud gaming revenue means that segment accounted for about 3.7% of Nvidia’s revenue of $26.9 billion in fiscal year 2022. That might seem like a small number. right now, but it won’t be surprising to see the GeForce Now boom in long-term business. Indeed, the cloud gaming market could reach $14 billion in revenue by 2027, growing at a compound annual growth rate of 64% for the next five years.

If Nvidia manages to retain its share of this potentially lucrative market, GeForce Now could become an over $8 billion business for Nvidia in five years. This is a significant figure considering the overall revenue generated from Nvidia’s gaming business in fiscal year 2022. Additionally, the size of the cloud gaming market could reach $22 billion by 2030 according to a third-party estimate, indicating that this space could prove to be a long-term moneymaker for Nvidia given its already dominant position.

Nvidia is pulling the right strings to capitalize on this opportunity

There are a few simple reasons why Nvidia currently dominates the cloud gaming market.

First, the company offered gamers high-end games at an attractive price through its GeForce Now RTX 3080 plan.

With the plan priced at $19.99 per month or $99.99 for six months, gamers pay a fraction of what they would spend to build a high-end gaming PC powered by the RTX 3080 graphics card that starts at the Manufacturer’s Suggested Retail Price (MSRP) of $699, although that may not be the case in the real world where graphics card prices are much higher due to tight supply.

Second, GeForce Now boasts of a library of over 1,200 games available in 80 countries. This, coupled with attractive pricing, puts the company in a strong position to tap into a large addressable market of one billion underpowered PCs and Chromebooks, an equal number of iOS and Mac devices, and 4 billion Android users.

And finally, Nvidia has partnered with key companies to grow its cloud gaming business. Samsung and LGfor example, offer GeForce Now on their televisions, while AT&T has also entered into a partnership with Nvidia to offer the service to its subscribers.

Such moves could ensure the healthy growth of Nvidia’s cloud gaming business in the long term and help the company remain one of the top gaming stocks for a long time.