Artificial intelligence (AI) has been the driving force behind Nvidia (NVDA -0.02%) stock's impressive rise over the past couple of years, as major cloud service providers and governments have been rushing to get their hands on the company's chips to train large language models (LLMs) so that they can launch AI services for customers.
AI has had such a huge impact on Nvidia's business that the company now gets 88% of its total revenue from this segment. Gaming, once Nvidia's bread and butter, now accounts for just over 9% of its top line. That's why it is not surprising to see why analysts and investors take a keen interest in Nvidia's data center business, as this segment now plays a critical role in deciding the direction the stock will take on the market.
However, savvy investors shouldn't miss out on the long-term growth opportunities that Nvidia could take advantage of either. Of course, the data center business is the biggest growth driver for Nvidia right now, but there is another segment that could contribute impressively to its growth in the coming years. Let's take a closer look at that opportunity.
Nvidia has set its sights on this potentially massive growth opportunity
At the CES 2025 trade show, Nvidia announced that it is widening the reach of its GeForce Now cloud-gaming platform. The company points out that GeForce Now can turn "any device into a GeForce RTX gaming PC," and gamers will be able to access this service from the Steam Deck handheld gaming console, as well as virtual and mixed-reality headsets from the likes of Apple, Meta Platforms, and ByteDance.
Nvidia will also launch a GeForce RTX data center in India in the first half of 2025. It is worth noting that the company launched such data centers in Japan, Colombia, and Chile last year. So, Nvidia's cloud-gaming service could witness a robust increase in adoption this year thanks to its availability on more devices and in more regions across the globe.
Nvidia's GeForce Now expansion is coming at a good time thanks to the growing spending on cloud gaming. Financial advisory and consulting firm Alix Partners estimates that consumers are likely to spend more money on streaming games from the cloud rather than investing in gaming consoles and personal computers (PCs).
The firm points out that the availability of AAA games -- which are high-quality video games published by major studios -- on mobile devices along with the availability of fast internet connections and cloud infrastructure that supports such games will boost the adoption of cloud gaming. Additionally, cloud gaming doesn't require expensive hardware such as graphics cards or consoles as the games run on remote servers and are delivered to devices through the internet.
Gamers simply have to subscribe to a service such as GeForce Now, and they can play high-quality games on their existing device without having to invest in dedicated hardware. These are the reasons why Alix Partners is forecasting the cloud-gaming market to generate $11.1 billion in revenue in 2025, which would be a 58% increase over last year. That would be faster than the 40% growth the market reported in 2024.
By 2030, annual spending on cloud gaming is expected to reach almost $64 billion. The market is expected to keep growing at a terrific pace even after that, hitting an estimated $140 billion in 2032. This massive end-market opportunity explains why it makes sense for Nvidia to ramp up its presence in this space.
Nvidia could be on its way to becoming a major cloud-gaming player
Though Nvidia doesn't spell out how much revenue it gets from GeForce Now or the number of users the service currently has, past data indicates that its cloud-gaming platform has witnessed rapid adoption. In August 2022, Nvidia CFO Colette Kress remarked that GeForce Now has more than 20 million registered users. That was a big improvement from February 2020 when the service had 1 million users.
Video game analytics provider Newzoo pointed out in 2022 that a total of 31.7 million users were paying for cloud-gaming services. Nvidia, therefore, was already a solid player in this nascent market at that time. That doesn't come across as a surprise since Nvidia has been the dominant force in the market for gaming graphics cards over the years thanks to its technological lead over AMD, a trend that continues to this day as it controlled 90% of this space in the third quarter of 2024.
The company now offers access to more than 2,100 gaming titles to customers on GeForce Now, a number that's likely to continue expanding. Gamers can join Nvidia's cloud-gaming platform for free to access this huge gaming library, though they will be restricted to long queue times and one-hour gaming sessions. On the other hand, the membership plan priced at $9.99 a month will give gamers a six-hour gaming session and shorter queue times.
The highest-priced membership tier of $19.99 a month comes with more bells and whistles, such as 4K gaming, higher frames per second for a better gaming experience, and longer sessions of 8 hours. That's because members using this plan will have games streamed to their devices from data centers powered by Nvidia's flagship RTX 4080 gaming GPU (graphics processing unit).
Another reason why Nvidia's cloud-gaming offering is likely to take off in the long run is because its most expensive subscription plan is cheaper than buying AAA gaming titles such as Call of Duty: Black Ops 6 that's priced at $69.99 on PC. So, the lower cost of gaming from both the hardware and software perspective should be a tailwind for both the cloud-gaming market and Nvidia, which already seems to be building a nice position for itself in this niche that should help it corner a big chunk of this multibillion-dollar market in the long run.
