Advanced Micro Devices, Inc. (NASDAQ: AMD ) never seems able to catch Nvidia Corporation (NASDAQ: NVDA ) in the PC space. But when it comes to gaming consoles, it’s a different story. AMD dominates, with its AMD Jaguar CPU and an AMD GPU powering nearly every console in the current generation.

Source: Microsoft

That streak continued when Microsoft Corporation (NASDAQ: MSFT ) announced its new Xbox One X during the Electronic Entertainment Expo.

Billed as the world’s most powerful video game console, the Xbox One X has an AMD Jaguar CPU inside, with an integrated AMD GPU providing 6 teraflops of graphics performance.

It’s AMD Inside

The current generation of video game consoles includes seven different models from three manufacturers: Microsoft, Sony Corp (ADR) (NYSE: SNE ) and Nintendo Co., Ltd (ADR) (OTCMKTS: NTDOY ). Of those seven consoles, just one — the Nintendo Switch — uses an Nvidia CPU and GPU.

The Xbox One, Xbox One S, Xbox One X, Playstation 4, PS4 Slim and PS4 Pro each have an AMD Jaguar CPU with an integrated AMD GPU providing the graphics horsepower.

That’s a pretty impressive domination of the industry. When it comes to game consoles, AMD enjoys a larger market share than rival Nvidia does with computer graphics cards, and a degree of popularity in line with Intel Corporation (NASDAQ: INTC ) when it comes to computer CPUs.

Why Sony and Microsoft Chose AMD Jaguar

There are a few questions when it comes to AMD’s apparent vice grip on the video game console market.

First, when there is so much apparent overlap with the PC gaming industry — to the point where Xbox One and PS4 games can be streamed to a PC, and Microsoft is pushing “Xbox Play Anywhere” games that can be played on its console or a PC — how is AMD front and center? Shouldn’t these consoles be running Intel CPUs with Nvidia graphics chips?

According to Forbes’ Patrick Moorhead, there’s a good reason for that. He says both console makers wanted to stick with X86 architecture to make game and app development easier. They wanted 64-bit processing. And they wanted both the CPU and the GPU together on a single piece of silicon — a SOC (system on chip) design that saves space and generates less heat.

These very specific design requirements eliminated the two power players in PC gaming. AMD can’t come close to Intel’s PC CPU market share, but the AMD Jaguar CPU does what Intel couldn’t do — put a 64-bit X86 processor with high-powered graphics on a single, custom chip.

And while Nvidia is number one for PC graphics cards, it lacks the X86 license and know-how to design the SOC that Microsoft and Sony wanted.

Why Did Nintendo Choose Nvidia?

Nvidia has an established line of energy-efficient CPUs for smartphones and other mobile devices in its Tegra. Nintendo says that Nvidia’s PC graphics success was a big factor in its choice. Graphics aside, the Nintendo Switch is a portable system that depends on power efficiency to squeeze more life out of its battery.

Nvidia’s Tegra CPU is already proven as a mobile solution that’s optimized for battery power, and that made it an easy choice over the much beefier AMD Jaguar. Nintendo is also not concerned with cross-compatibility with PC games and PCs in general, so AMD’s X86 architecture became less of an advantage.

Is the AMD Jaguar Profitable?

AMD’s game console business appears to be paying off. When the Playstation 4 was first released, IHS iSupply did a breakdown analysis of component costs versus retail price. The research firm estimated that of the $399 retail price of the PS4, approximately $18 of that went to Sony and $100 to Advanced Micro Devices for that AMD Jaguar CPU. And there’s no doubt that strong game console sales translate into a revenue jump for AMD.

Whether AMD can leverage the success of its AMD Jaguar as the CPU/GPU combo of choice among game consoles into larger market share in the PC space remains to be seen. However, with the impressive demonstrations Microsoft was showing with the Xbox One X, the performance of this latest game console certainly isn’t going to hurt AMD’s reputation.

And the latest round of console wars — Xbox One X versus PS4 Pro — is only going to boost its bottom line, especially with the AMD Jaguar in both.

As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.