AMD's Struggling Gaming Business Could Take Another Hit This Year

A lot is going right for Advanced Micro Devices (NASDAQ: AMD) right now. The company has been gaining share in the PC CPU market, its server CPUs have been selling well, and its AI accelerators have quickly turned into a multibillion-dollar business.

The gaming business is another story. AMD's gaming revenue crashed 69% year over year in the third quarter of 2024 to just $462 million. For comparison, the data center segment produced $3.5 billion in revenue during the same quarter.

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There are two issues at play. First, AMD supplies semi-custom chips for the major game consoles. The current generation of game consoles are now in the latter part of their life cycles, so it makes sense that demand is slumping.

This source of revenue should bounce back sometime in the next few years, depending on when Sony and Microsoft launch new consoles. The next-generation consoles will likely be powered by AMD chips.

Second, AMD remains in a distant second place behind Nvidia in the gaming GPU market. While AMD doesn't break out gaming GPU revenue, the company disclosed in its earnings call that gaming GPU sales were down year over year in the third quarter. The company partially blamed the upcoming launch of its next-generation graphics cards as a reason for the decline, but Nvidia managed to grow gaming revenue during its most recent quarter despite also prepping new products.

The situation could get worse this year

AMD's new Radeon RX 9000 series graphics cards could help boost gaming revenue when they launch sometime in the first quarter, but the company will be up against brand-new RTX 50 series graphics cards from Nvidia. Nvidia's new cards bring some fancy AI-powered tech, and there's little reason to believe AMD's competitive position will meaningfully improve in the pricier portions of the market that Nvidia tends to dominate.

AMD has historically been far more competitive in the lower-end portion of the market, where prices stay below $300. AMD's RX 7600 card is the company's most recent budget option, although older-generation graphics cards like the RX 6600 remain widely available. Nvidia has been largely ignoring this part of the market -- even the four-year-old RTX 3060 still sells for around $300.

As AMD battles Nvidia in the high end of the market, a surprising comeback from Intel (NASDAQ: INTC) will provide stiff competition in the low end. Intel entered the graphics card market in late 2022 with its Arc Alchemist cards, but software issues derailed the effort. The company didn't give up, and its second-generation Battlemage cards are far more potent.

Intel's B580 was called "the new $249 GPU champion" by reviewers at Tom's Hardware. The company has greatly improved its software drivers and brought enough performance gains to the table to make its new midrange graphics card a highly attractive option for gamers on a budget. The B580 wipes the floor with AMD's similarly priced RX 7600, and it even edges out the pricier RX 7600 XT on average.

Intel also offers the $219 B570, which reviewers at Ars Technica called "the cheapest good graphics card." Intel has packed in enough performance at a low-enough price to make the B570 a compelling option for the most cost-conscious PC gamers.

This is the environment that AMD finds itself in as it prepares to launch its new RX 9000 graphics cards. The company will likely start with higher-end cards and then fill in its lineup over time, giving Intel months as the undisputed budget gaming king. While Intel won little market share last time around, its Battlemage graphics cards are poised to be big winners. They're reportedly selling out everywhere, and prices are elevated due to high demand.

A minor headwind

AMD is far more diversified today than it was even a few years ago. The gaming business is still important, but the company's PC CPU, server CPU, and AI accelerator businesses are capable of driving growth even if gaming sales continue to lag.

Still, gaming could continue to drag down the company's results this year, even with the RX 9000 launch looming. With Nvidia dominant in the high end and Intel making a play for the low end, AMD could see its graphics market share contract further in 2025.

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Timothy Green has positions in Intel. The Motley Fool has positions in and recommends Advanced Micro Devices, Intel, Microsoft, and Nvidia. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft, short February 2025 $27 calls on Intel, and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.