Introduction
Markets are anyplace where the buying or selling of goods and services happen. It is a
mutually beneficial exchange whereby one party sells a good or a service to a
consumer and the consumer pays the seller through currency or something else of
similar value. Markets exist everywhere in the world and all our commodities were
bought using currency of some kind. There are different types of market structures that
exist based on the sector and the country. In this scenario we will be looking at the
technology sector specifically related to Graphical Processing Units (GPUs) and the
companies that exist in this space and what type of market structure it follows. But what
exactly is a GPU?
A GPU is a chip or a circuit capable of creating graphics for display on an electronic
device. It is very useful for creating smooth graphics for games and is there in almost all
electronic devices now either as integrated graphics with the Central Processing Unit
(CPU) or as a separate component. These chips were initially introduced in the market
by Nvidia and currently has a market size of 51 billion USD.
Companies
Nvidia
When looking at current market shares, we can see that without a doubt Nvidia is the
biggest supplier of GPUs both to desktops and laptops with Nvidia’s share being 80% in
the desktop space and 94% in the laptop space showing its utter domination. This
comes to no surprise as Nvidia has been one of the oldest suppliers of GPU as when it
first set out on 5 April 1993 and supplied the first GPU in 1999, the GeForce 256. Nvidia
has scaled up its operations by introducing their patented technology for ray tracing ( a
technique whereby the GPU can realistically simulate the lighting of a scene and its
objects by rendering physically accurate reflections, refractions, shadows, and indirect
lighting.) and Deep Learning Super Sampling also known as DLSS (whereby the GPU
uses AI to artificially generate frames on the computer) which has led them to be the
pioneers of GPU’s in the space for gaming. Not only that, due to the sheer amount of
processing capabilities of chips like the RTX 4090, it has become the go to AI chip
which is used by multiple AI centres. Nvidia has also released its A6000 GPU which is
made for rendering purposes like for engineers and scientists to test their products on
models. The graph and data below show how much Nvidia’s GPUs are being utilised by
AI models
Advanced Micro Devices (AMD)
The next company with the highest market share is Advanced Micro Devices (AMD).
We can truly see the dominance of Nvidia by looking at its competitors' market share
which is only 17% for desktop and is only 3% for laptop GPUs. AMD has been
increasingly focusing on the affordability side of things by keeping its GPUs in a price
range such that regular customers can buy them. AMD GPUs have also been known to
give more Frames Per Second (FPS) Per Dollar then Nvidia GPUs meaning they are
more worth it for the price. Saying this however, is not enough as AMD has struggled to
make a name for itself in the GPU market place as Nvidia has got better features added
into its graphics card and also supports a variety of applications.
AMDs market share difference currently can be visualised in the graph below in the
desktop GPU market
Intel
The last major player in the GPU market place is Intel which has the lowest market
share out of all the other GPU manufacturers. Intel has a 2% market share for desktop
and 3% market share for laptop GPUs. Intel has been constantly trying to innovate its
GPUs after it first entered the market place in 2022. It has been the newest player in the
GPU market which explains the low market share. However, Intel has still been falling
behind the other two companies when it comes to features and value and only recently
has been adding driver support to newly released games. If Intel wants to go to the top
spot, it truly has a long way to go in the field of innovation. The blue line in the graph
below shows Intel's market share in the desktop GPU market.
Current market structure
Ultimately, we see that the GPU market, especially for the desktop GPUs, is an
oligopoly market as there are multiple players buying different GPUs but there are only
three major players selling the GPUs. Moreover, it is a non-collusive oligopoly such that
all the companies are trying to get an edge higher than each other and are not
coordinating to try and get maximum profit for each other.
We can see this in varying different factors such as the fact that the GPU sellers are the
price makers, that is, they are the ones that define the price for their commodity and so
based on their decision the prices go up or down. There are also several barriers to
entry as it has already been so dominated by Nvidia and AMD that it is still difficult for a
big company like Intel to join the fight, forget about smaller companies. There is also
product differentiation as each of the products have different features which are
marketed to multiple audiences to try and target each one of them in specific ways, for
example, Nvidia charging a premium for its special features like Ray Tracing and DLSS
and AMD selling it for cheaper to maximise FPS per dollar. The prices are also sticky as
it is very difficult for prices to come back down however it is very easy for the price to go
up. An example of this scenario was in 2021 and how COVID completely destroyed the
supply chain for chip manufacturing and the prices of GPUs skyrocketed. However,
even after the world began opening up and the supply chain started easing down, the
price was still higher than pre covid levels even including the inflation rate. Only recently
has prices gone down slightly which shows the price sticky nature of GPUs.
However, for laptop GPUs we can say that it is a near monopoly on the side of Nvidia
considering they have a 94% market share and the fact that they prevent new players
from getting into the market by partnering with laptop manufacturers and preventing
them from using any other GPUs. The desktop space is highly customizable with people
being able to change all the components with no need to go to third party manufacturers
unless absolutely necessary. However, laptops come prebuilt and they have to be made
by third party manufacturers as the monitor, keyboard, touchpad and all other inner
components need to be all put in a compact form. So, third party manufacturers have to
coordinate with companies manufacturing components to be able to create compact
designs. This leads to the entry problem for AMD and Intel.
Nvidia was able to get the market share for GPUs much faster because of how early
they started and how much they innovated. So, laptop manufacturers coordinated with
Nvidia to add GPUs into their laptops. When AMD and Intel entered into the market,
Nvidia used their market share and influence in their already existing agreements with
laptop manufacturers to ensure that they do not use AMD or Intel for their GPUs. This
creates a near monopoly whereby the entry into the laptop GPU market is very difficult.
However, there is one difference between the monopoly market structure and the laptop
GPU market and that is the unique product. The laptop GPU market is not that unique
between each company other than certain features. The reason for this is quite simple.
Nvidia has created an artificial monopoly by ensuring that other manufacturers do not
go and buy their competitors discouraging competition in this market which is why it is a
near monopoly market structure. In this market Nvidia is the price maker for selling to
third party manufacturers based on the value for laptop GPUs and they are a profit-
making firm.
Future Market Structure
Technology has been rapidly evolving especially with the innovation of Artificial
Intelligence and this is causing a rapid change in the GPU market place. Nvidia has
been soaring in share price due to the amount of orders it has been receiving related to
the AI compatibilities its RTX 4090 has with it being used in most large AI models.
However, on the market share side, AMD is planning on reducing their competition on
the higher end GPU side like the RTX 4090 and they are planning on innovating on the
mid range GPU market by giving great value per dollar to the people and their ultimate
goal is to get 40-50% market share through this strategy. Intel has been steadily
increasing its presence by making their GPUs better, however they still have a good
way to go before they start targeting Nvidia or AMD’s market share for desktop GPUs.
However, they have been regularly growing in terms of laptop GPUs, having an equal
market share as that of AMD. Consumers have also started paying more attention to
what all features their GPUs are giving now especially with the rise of Tech Youtubers
promoting the use of AMD, having great value per dollar that might start giving AMD an
advantage in this space. Ultimately, while the markets are currently operating on more
or less an oligopoly it is likely to become a full oligopoly in both the laptop and the
desktop marketplace due to the innovations being done by both AMD and Intel and
Nvidia trying to diversify its operations as well.
The main problems hampering all these companies is related to the supply chain
issues. Currently, all these companies outsource their chip manufacturing to the global
leader of chip manufacturing which is the Taiwan Semiconductor Manufacturing
Company (TSMC). Their main facility is located in Taiwan and while they are planning
on opening a plant in the US, they say they still have to do their main assembling in
Taiwan. This leads to a load of problems as Taiwan has always been under fire from
China and analysts have been predicting a Chinese invasion of Taiwan being imminent.
If Taiwan ever enters into a war with China, this can hold unprecedented risks to all the
GPU manufacturing companies as they are so over dependent on TSMC for their chips.
To try and prevent this from ever arising, these companies should try to innovate and
manufacture their own chips which will reduce their dependence on TSMC, will also
decrease their costs and can increase their profits as they can help manufacture
products for other organisations which will be a major change in the GPU market and
also the advanced chip manufacturing industry forever. Intel is however planning on
addressing this problem by making their own chip foundries. They are currently still
behind TSMC however they are increasing their scale of operations massively and plan
to have 1.4 nm chips ready by 2027. If this happens then Nvidia, AMD and Intel can
locally manufacture their GPUs which dramatically reduces wait time for manufacturing
and reduces the risk of major supply shortage due to unforeseen situations.
Conclusion
The GPU market is a market with big potential with estimates suggesting it to grow to
456.3 billion dollars both due to the high intensity usage of GPUs that is growing in all
aspects (can be seen with the latest Vegas sphere which contains 10,000 Nvidia A6000
GPUs) but also with the innovation of AI and companies and investors seeing big
potential for GPUs to influence the market.
References
https://www.gminsights.com/industry-analysis/gpu-market
https://www.digitimes.com/news/a20240910PD206/amd-gpu-gaming-market-share-
market.html#:~:text=In%20the%20gaming%20graphics%20processing,attracting
%20more%20software%20devel…
https://wccftech.com/gpu-market-rebounds-q2-2023-amd-nvidia-intel-increased-
shipments-discrete-gpus-up/
https://www.tomshardware.com/pc-components/gpus/discrete-gpu-sales-increase-as-
intels-share-drops-to-0
https://www.pcgamer.com/hardware/graphics-cards/gpu-sales-are-on-the-up-but-amds-
rx-7000-series-graphics-cards-are-its-worst-selling-in-over-20-years/
https://developer.nvidia.com/rtx/ray-tracing
https://www.investopedia.com/terms/g/graphics-processing-unit-gpu.asp
