Opinion: New Nvidia chips shift the future of gaming graphics

Nvidia

Nvidia revealed at the Gamescom expo in Cologne, Germany, its next-generation graphics technology that will power its newest gaming products powered by the Turing architecture.

New GeForce cards will forgo the “GTX” brand that the company has used for many years, instead moving to “RTX” for the high end of the market, indicating the dramatic shift in graphics technology the new GPU (graphics processing unit) represents. Just last week Nvidia NVDA, +1.34%  announced professional graphics cards using the same Turing graphics architecture with the “Quadro RTX” name.

The move to RTX references an initiative at Nvidia to build products capable of real-time ray tracing. Ray tracing is a graphics rendering technique that simulates the interaction of light rays with physical objects to generate images. This allows developers and games to showcase the most life-like reflections, shadows and more. It differs dramatically from current rendering (called rasterization) that attempts to recreate these same effects with more efficient algorithms that less accurately simulate effects.

Nvidia is already the leader in graphics-chip share for the PC gaming market, and I expect that to lean further in its favor with this release.

Until this new generation of Nvidia graphics chips introduced performance acceleration for ray tracing, using it for real-time graphics in gaming was a nearly impossible feat. Modern movie effects are achieved with ray tracing, but require significant processing power and time. Nvidia is bridging the gap between what is possible in gaming and in movies.

Game developers are ready

While new features are introduced by graphics technology providers continuously with each new architecture, the advantage that Nvidia has today for the GeForce RTX series is the readiness of game developers to integrate the technology. Without games that use ray tracing, the feature could appear to be a gimmick.

Several of the largest game publishers were on stage with Nvidia to showcase their titles that already integrate ray tracing capability of improving graphics. Electronic Arts EA, +0.09%  and its popular Battlefield franchise have adopted ray tracing for amazingly realistic surface reflections that show in reflective car finishes, windows and more from all light sources in the scene — not possible without ray tracing.

Square Enix and its Shadow of the Tomb Raider title also include ray tracing features for its September launch. The demo impressed with lighting and shadow combinations previously impossible in state-of-the-art game engines.

Price shows power of Nvidia

When recent Apple AAPL, -0.92%  earnings indicated that the ASP (average selling price) of the iPhone had increased by more than $100 with the launch of the iPhone X, it showed that consumers are in a position to pay more, and are willing to pay more, for products deemed higher quality than the competition.

The new GeForce RTX cards have increased street prices relative to the same class of product from the previous generation. The flagship GeForce RTX 2080 Ti will run gamers nearly $1,200, a boost of $400 over the models launched two years ago. The RTX 2080 and RTX 2070 will run $800 and $600, respectively, a price bump of $200 each. I expect to see some initial pushback from the increase from vocal consumers, just as Apple saw with the pricing increase last year. But if gamers continue to buy up the technology that Nvidia is producing, then the prices will be justified.

As a result, I expect to see revenue and margins for the gaming segment of Nvidia’s finances to improve next quarter, assuming the available inventory of the GeForce RTX products is high enough to satisfy demand from the gaming community.

Nvidia will gain market share

Nvidia is already the leader in graphics-chip share for the PC gaming market, and I expect that to lean further in its favor with this release. Though the high end of the market (which these first RTX products are targeting) is small compared to the mainstream price segment, there is a strong buildup of demand for new gaming technology that could push more buyers into the higher price segments than in previous generations.

In the two years since the launch of Nvidia’s previous architecture, the industry has seen some wild swings. The cryptocurrency and bitcoin BTCUSD, -1.03%  boom caused GPU prices to skyrocket as miners bought up all available inventory. As a result, many gamers were pushed out of the market, unable to find products in their budget, stalling sales. Now that crypto has died off, prices are dropping on existing product in the channel. Rumors of even faster, better products have kept buyers on hold, waiting to see what Nvidia would announce.

I have theorized around the problems Nvidia and AMD AMD, +1.19%  might have once the crypto bubble burst and a significant number of used graphics cards flooded the market. This could still impact the sales of new products from both vendors. But Nvidia might have alleviated some of that by emphasizing the new ray tracing capability of the RTX line, pushing gamers who want the latest technology to rethink purchasing cheaper hardware from last generation.

How AMD could respond

Most agree that Nvidia had a lead in the graphics space from both a market and technology view. The launch of the GeForce RTX chips increases that even more, putting Nvidia in the driver’s seat for the foreseeable future.

This leaves AMD in a tough spot. Its current GPUs do not support acceleration engines for either ray tracing or artificial intelligence, leaving it a full step behind the capability that Nvidia can offer to gamers today. Though game developers are unlikely to lock any game titles behind a requirement for ray tracing, the more instances of games that integrate this added capability can create a rolling tide, putting more pressure on AMD to react.

AMD has no plans for a refresh to its consumer graphics product lines on its roadmap for 2018, so it is possible that Nvidia will maintain this technological advantage well into 2019.

Ryan Shrout is the founder and lead analyst at Shrout Research, and the owner of PC Perspective. Follow him on Twitter @ryanshrout.

Get the top tech stories of the day delivered to your inbox. Subscribe to MarketWatch’s free Tech Daily newsletter. Sign up here.

Get the top tech stories of the day delivered to your inbox. Subscribe to MarketWatch's free Tech Daily newsletter. Sign up here.