2 stocks to buy as global PC sales boom
The personal computer (PC) industry was heavily boosted by the novel coronavirus pandemic last year that sparked an increase in remote working and online learning, and industry watchers are expecting for the momentum to continue into 2021 and beyond.
Canalys estimates that the global PC market could experience growth of 8.4% in 2021. The market outlook looks good through 2025 as sales are expected to increase at a compound annual growth rate of 3.5%, with growth expected in all verticals such as desktop computers. , notebooks and tablets. However, the PC market could see a faster growth rate, as a 55% year-over-year spike in shipments (according to IDC) in the first quarter of 2021 indicates the huge potential of the market.
Investors can take advantage of this growth opportunity with the help of Advanced micro-systems (NASDAQ: AMD) and NVIDIA (NASDAQ: NVDA) – two companies that are expected to gain heavily from the growth of the PC market. Let’s see how.
1. Advanced micro devices
AMD saw a huge spike in demand for its Ryzen PC processors last year. The company’s client processor revenues jumped more than 50% in 2020, thanks to strong sales in desktops and laptops. Additionally, its latest generation Ryzen 5000 processors proved to be a runaway success, as their quarterly sales at launch were more than double that of any previous generation Ryzen desktop processor.
Ryzen 5000 processors were so popular that AMD reportedly shipped 1 million in the fourth quarter of 2020, according to Mercury Research. This is impressive considering the Ryzen 5000 series processors only went on sale the first week of November and they were in short supply as AMD struggled to keep up with unprecedented demand.
The good news is that AMD is working to increase supply in the market. Supply chain sources say the chipmaker is increasing Ryzen 5000 production by 20% in the current quarter from Q1 levels. Such a move should help AMD tap the growing demand for PCs and improve its market share. More importantly, AMD’s increased pricing power in PC processors and its dominant position in the high-end segment of the market is expected to translate into strong revenue and profit growth for the company as shipments are increasing.
AMD is also in a good position to benefit from increased sales of laptops. The company’s latest Ryzen 5000 notebook processors are expected to launch in 50% more designs compared to the previous generation platform. AMD’s Ryzen 4000 processors were powering 100 laptop models, meaning the latest platform could find its way into 150 laptops and notebooks and pave the way for stronger growth in 2021.
AMD’s computer and graphics segment accounted for two-thirds of the company’s revenue last year. The segment looks set for another exceptional year thanks to favorable winds in the PC processor market. This is one of the reasons AMD plans to deliver a tremendous increase in revenue once again this year, making it one of the best tech titles to take advantage of the surge in PC sales.
Rising PC sales translated into strong demand for discrete graphics cards last year. An estimated 41.5 million discrete GPUs (graphics processing units) were sold last year, a jump of about 3 million units from 2019. Shipments could have been much higher if the The market had not been constrained by insufficient supply last year, which led to an increase in the average selling price of graphics cards.
NVIDIA’s GPU sales momentum is expected to continue into 2021 and beyond, which is not surprising given the dynamics in the PC market. According to a third-party report, gaming PC sales could increase another 25% by 2024 after registering 16% growth in 2020.
Additionally, Mordor Intelligence estimates GPU sales could reach a CAGR of 13% over the next six years. This combination of higher gaming PC sales and the expanding GPU market should ideally lead to increased sales of discrete graphics cards used for gaming.
NVIDIA is one of the best bets to take advantage of this growth as it controls 82% of the discrete GPU market. The company significantly increased its share of the discrete GPU market in the fourth quarter of 2020 with its RTX 30 series cards, which are in high demand because they offer a big performance boost over their predecessors at an attractive price point. As a result, NVIDIA’s huge installed base of GPU users on legacy cards is upgrading to the latest chips.
This is one of the reasons NVIDIA estimates that GPU demand will exceed supply this year despite the company’s efforts to ramp up production. As such, NVIDIA appears to be in the middle of a GPU upgrade cycle that will likely continue until the company manufactures enough cards to meet end-market demand – which is unlikely. this year according to the latest management comments.
Additionally, the shortage of supply and higher demand can drive up the prices of GPUs, even though they are selling at significantly inflated prices from the official retail price. All of this makes NVIDIA a solid game in the PC gaming market, as the company derives half of its revenue from the sale of discrete gaming GPUs.
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