It’s been years since AMD has been a leader in any market. First, it challenged Intel in the battle for semiconductor supremacy – and lost, badly, watching helplessly as Intel’s superior technology reached 75% dominance of the microprocessor market by 2007. As Intel surged, AMD swooned, and made a fateful decision to diversify its business. The purchase of ATI Technologies in 2006 burdened the books to the tune of $5.6B – and investors punished the stock, which has dropped nearly 90% in the two years since.

The purchase of ATI gave AMD an inroads in the growing GPU industry – graphics processing units that render video games in a vivid three dimensions. But there is intense competition in that market, thanks to NVIDIA, which focuses exclusively on graphics chips. The market share statistics tell the story of AMD’s decline the rest of the microprocessor industry’s big three (including both computer processors and graphics chips) have thrived.

Chip Makers Market Share, 2006-2007

But AMD has begun to gain gamers’ attention with its efficient business model – make chips that sacrifice a bit of speed but are easy to make and can be sold at lower prices. The company’s newest high-end graphics cards use two GPUs rather than one – and will start at $549, a serious discount over NVIDIA’s latest competing product, which debuted at $649 in June.

As the price of both products declines rapidly (NVIDIA’s GTX cards are already going for $449), the competitors will continue to pump research money into the development of their next product – and strive to capture the imagination of gamers, the niche audience for high end graphics cards. Consumers buy NVIDIA and AMD’s cards along with powerful gaming computers, and they often customize these products to meet their own specifications. Preferences in this market can be fickle forces, and investors looking for rebounding tech stocks in the slumbering bear market would be wise to keep track of the graphics gamers are using.

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