I hate to say I told you. But back in October, I wondered if AMD would give up on PC gaming graphics chips. Now AMD has released its latest financial results and things are only looking uglier.
For the first quarter of 2024, AMD said its gaming revenues were down as much as 48% compared to the same period in 2023. While some of that decline reflects an inevitable cyclical downturn in gaming console revenues - simply put, the consoles are It has been quiet for a while and sales are starting to stagnate. AMD also admitted that "lower AMD Radeon GPU sales" were also to blame.
In fact, even AMD says things will get worse before they have any chance of getting better. "Demand has been quite weak," said AMD's CFO Jean Hu, "we actually think the second half will be lower than the first half. That's basically how we look at the gaming industry this year."
The only good news that AMD could deliver regarding gaming products was that they were quite low margin, so if fewer of them were sold it would mean that AMD's overall average margins would improve due to the shrinking gaming industry. "Gaming's gross margin is lower than our company's average. So overall, it will benefit the mix on the gross margin side," Hu said. Ouch.
Meanwhile, gaming consoles don't look so healthy either. Microsoft says Xbox sales fell 31% in the most recent quarter, and the company's future expectations for console sales are also quite pessimistic.
Developing games is of course becoming super expensive, while hardware sales are shrinking. All things considered, there's a bit of a broader crisis going on in the gaming industry.
Rumor has it that the next Xbox will be deliberately more niche, similar to Microsoft's Steam Deck, something for the biggest Xbox fans rather than an attempt at a mass-market platform. That's hardly good news for AMD revenues, considering Xbox has been based on pure AMD hardware for several generations.
Maybe Sony will do something spectacular with the upcoming PS5 Pro or PS6 to revive the console market. But it's hard to come to anything other than a fairly pessimistic one about AMD's medium-term prospects in gaming graphics, whether on PC or console.
With all that in mind, the rumors that AMD has abandoned any plans for high-end members of its upcoming next-gen RDNA 4 GPU lineup make sense. Why bother with all that investment if no one is going to buy the GPUs anyway, especially now that cryptocurrency miners can't be trusted to clear a boatload of cards?
And if you question the idea that no one will buy AMD GPUs, all you have to do is look at Valve's Steam hardware survey data. It is certainly not the perfect data set. But it shows that Nvidia cards are used by more than 75% of gamers and AMD by about 15%.
Of course, this includes many older GPUs. In fact, you have to go to position eight in the list of most popular GPUs on Steam to find one from AMD or Nvidia's current generation of graphics cards (it's an Nvidia GPU, of course).
Oh, and in terms of most popular individually identified AMD GPU (as opposed to a generic AMD Radeon entry), you have to go all the way to 31st place. The truly horrifying fact is that of the top 100 GPUs, the only current-generation AMD product to make the list is the Radeon RX 7900 XTX.
The RX 7800 XT, 7700 XT, 7600 XT and 7600 simply do not appear. So yes, you can argue about how accurate the Steam survey really is. But it's very hard to imagine the Radeon RX 7000 series being anything but a retail disaster, while having virtually no impact on gamers surveyed on the biggest and most important PC gaming platform.
The point is that AMD's previous Radeon RX 6000 series was actually very strong competition for Nvidia's Ampere generation RTX 3000 GPUs in technical terms. But it by itself had virtually no impact on improving AMD's graphics market share for PC gaming.
The Radeon 7000 family was a lot less convincing compared to Nvidia's RTX 4000 series GPUs. And so it is not surprising that the already poor sales decline even further.
All of this begs the question of what AMD can do to turn things around, and will it, or should it even bother trying? The biggest disappointment with the RX 7000 line was the inability to substantially improve ray-tracing performance.
Sure, AMD's FSR upscaling technology isn't as good as Nvidia's DLSS either. But FSR can and will be updated. So you could buy an AMD GPU with some expectations of improvement in that area, and in real terms it's not that far off either.
It's hard to understand why AMD will continue to invest in what AMD itself portrays as a low-margin company.
This does not apply to the ray tracing prowess of an AMD GPU. The hardware is what it is and driver optimizations won't close the huge hardware gap with Nvidia in that area.
Some will argue that ray tracing is overhyped, doesn't appear in that many games, and doesn't actually make a huge difference to visual quality when it does. There is some truth in these feelings. But it is also undeniable that ray tracing is becoming more widely used and that its impact in terms of graphic quality is also increasing.
Ultimately, it's pretty hard to choose AMD when Nvidia's features are so much better, even though it might not make that much of a difference in all games. When you're spending many hundreds and hundreds of dollars, you want to think you have the best chance of enjoying whatever eye candy is released next month or even next year. With the best will in the world, it's hard to see AMD as the best choice for this.
It's notable in this context that Nvidia's efforts with its AI GPUs also appear to be relevant to its gaming chips. Nvidia is investing megabucks in developing AI Tensor cores for its AI chips, as used by the latest AI models in major languages. Then those Tensor cores are dropped into gaming chips and help make Nvidia's DLSS upscaling clearly better than AMD's non-AI FSR.
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Of course, AMD itself is trying to get into the AI training and inference game with the Instinct MI300 chip. And that is perhaps the most important, if modest, reason for hope. If AMD can gain some traction in that huge market, it will not only make a lot of money, but it will also be able to do something similar to Nvidia and push some of that technology to its gaming GPUs.
So perhaps it can then invest well in technologies like ray tracing and deliver an AI-based scaling solution that is truly competitive with Nvidia's. Judging by current estimates from both AMD and Nvidia, the latter will obviously generate at least 20 times more revenue from AI GPU sales this year. So if rising AI revenues and technology will help turn around AMD's fortunes in gaming graphics, it will be years before we see any evidence of that.
So in the end I will stick to what I said last time. RDNA 4 and the Radeon RX 8000 series, as it will probably be known, will have a limited scope and be a kind of stop gap. It will be RNDA 5 in late 2025, or more likely 2026, which could be the final roll of the dice for AMD and its Radeon gaming graphics. If that's a flop, it's hard to see why AMD will continue to invest in what AMD itself dismisses as a low-margin business. And so it could be an adios for discrete Radeon GPUs on the PC.
