Cloud gaming is still a nascent market, and it might be many years before the chipmakers and telecom providers get meaningful returns on their investments, analysts said.
In cloud gaming, graphics will be rendered in data centers and delivered to client devices. With billions of gamers expected to come online in the next few years, there will be a growing demand for high-end chips in data centers to maintain game delivery systems. But that will require a massive capital infusion to buy expensive hardware, which could delay the return on investments, analysts said. In addition, geographical limitations on delivery of cloud gaming services could affect scaling of services and return on investments.
Cloud gaming dominated the Game Developers Conference being held in San Francisco. Alphabet Inc.'s Google LLC on March 19 announced the Stadia cloud gaming service via servers with graphics chips from Advanced Micro Devices Inc. NVIDIA Corp. the previous day said it would provide its GeForce Now cloud gaming service via 5G service providers SoftBank Group Corp. in Japan and LG U+ in South Korea. Microsoft Corp. last year unveiled its xCloud gaming service.
 Nvidia's gaming server |
Streaming games will be yet another cloud-based workload that will drive the need for more compute cycles, which should help boost shipments and revenue over time, said Shane Rau, research vice president for computing semiconductors at IDC.
"However, we're in a period of moderating data center demand and, of course, games need to be optimized for streaming and the chips programmed accordingly. So, I wouldn’t anticipate explosive growth, but a minor to modest boost," Rau said.
It is difficult to balance infrastructure and service delivery costs against the revenue opportunity, and profitability can be elusive, said Piers Harding-Rolls, director and head of games research at IHS Markit.
"We still don’t have a cloud gaming subscription service with new releases included. When that happens a broader audience will start to take notice," Harding-Rolls said, adding that geographical constraints could affect infrastructure build-out.
IHS Markit is projecting consumer spending on cloud gaming content subscriptions to reach $1.5 billion in 2023 compared to $234 million in 2018.
AMD's stock closed around 12% higher on March 19 after news emerged of Google selecting the company's chips for Stadia cloud gaming. But AMD declined to provide guidance on how many graphics processors it will ship for services like Google's Stadia. AMD's chips are used in gaming PCs and consoles from Microsoft and Sony, and selling GPUs into data centers for cloud gaming is another extension of the gaming market, an AMD spokesman said.
Nvidia's CEO Jensen Huang gave an idea on how the company will cash in on delivering cloud gaming via 5G network providers during an investor conference March 19. Telecom operators will buy gaming servers — like RTX servers — from Nvidia, and the underlying infrastructure will be maintained by the chipmaker, he said. Telecom providers will keep more than 50% of the gaming subscription take, while Nvidia will "keep less than that," he said.
Nvidia is unloading the stress and expense to set up a cloud gaming infrastructure to telecom providers. GeForce Now has been in beta testing for six years, and the company is still trying to optimize the quality, resolution, responsiveness and other issues. The company has one million users on the waiting list to join the service, Huang said.
With respect to cloud gaming over 5G, "it is likely that 5G will provide a better network environment for the consumption of cloud gaming services. We’ll be waiting some time for its impact to be felt," IHS Markit's Harding-Rolls said.
Meanwhile, differentiated services like virtual reality gaming over the cloud could entice users to pay higher subscription fees, and chipmakers and telecom providers could chase that, said Jim McGregor, principal analyst at Tirias Research.
Intel Corp. is interested in the streaming games market but declined to comment on specifics.