Semiconductor stocks have significantly outperformed the broader market in 2023, as evidenced by the 66% gain recorded by the market. PHLX Semiconductor Sector index compared to the 24% gain of S&P500 index as of December 27.
A booming demand for artificial intelligence Chips (AI) have played a key role in the impressive rise in semiconductor stocks this year. It is no surprise that major semiconductor companies such as Nvidia (NASDAQ:NVDA) And Advanced microsystems (NASDAQ:AMD) generated healthy gains for shareholders in 2023.
The silver lining is that shares of these semiconductor giants could continue to soar in 2024 thanks to the emergence of a new catalyst.
PC market expected to rebound in 2024
Sales of personal computers (PCs) have been declining every quarter since the start of 2022. This market saw a surge in demand in 2020 and 2021 thanks to the coronavirus pandemic, which led many consumers to purchase new PCs as they turned their attention to doing more. learn, work and play at home. However, this demand disappeared in 2022 and the market is estimated to decline further in 2023.
The good news: 2024 could be the year PC sales increase again. Market research firm IDC forecasts a 3.4% increase in PC shipments in the new year, while Canalys forecasts an 8% jump.
Both companies say growth will be fueled by the advent of AI-enabled PCs, an aging installed base of legacy computers, and the looming need for users to upgrade to Windows 11 as Microsoft is expected to end support for Windows 10 in October 2025. Additionally, IDC expects the PC market to register a compound annual growth rate of 3.1% through 2027.
A turnaround in PC sales would be great news for Nvidia and AMD, as both companies supply PC chips and rely on this space for a significant portion of their high-end lineups.
Nvidia and AMD would benefit
People install Nvidia’s graphics cards in PCs to perform graphics-intensive tasks such as gaming, 3D rendering, and video editing. Nvidia has a market share of more than 80% in discrete graphics cards and we are already seeing a nice recovery in sales of its PC graphics cards as manufacturers replenish their stocks in anticipation of a recovery in demand.
During the second quarter of fiscal 2024, which ended July 30, Nvidia’s gaming revenue increased 22% year over year to $2.5 billion. This was followed by a year-over-year increase of 81% in the following quarter. Gaming accounted for nearly 16% of Nvidia’s revenue in the most recent quarter and the gaming sector’s impressive momentum of late is likely to complement growth in its data center business fueled by AI and lead to impressive growth in 2024.
Additionally, Nvidia management said during the November conference call with analysts who “Generative AI is quickly emerging as the new flagship application for high-performance PCs.” The chipmaker is looking to target this market with a new platform that will significantly increase the speed of AI inference workloads on PCs, which could lead to accelerated adoption of its graphics cards.
AMD has also seen a sharp recovery in its PC-focused business, which includes central processing units (CPUs) used in desktops, laptops and workstations. The chipmaker’s revenue in this segment increased 42% year over year to $1.5 billion in the third quarter and accounted for 26% of its revenue.
AMD management said in an October conference call with analysts that sales of its Ryzen AI PC processors “increased significantly during the quarter as inventory levels in the PC market have normalized and demand has started to return to seasonal trends. CEO Lisa Su also added that AMD has launched more than 50 new laptop models powered by Ryzen AI processors, which are equipped with an on-chip AI accelerator to handle AI workloads.
Even more exciting, AMD says it is “working closely with Microsoft on the next generation of Windows that will leverage our on-chip AI engine to enable the biggest advancements in the Windows user experience in more than 20 years.” AMD appears poised to ride the wave of PC sales recovery, especially as it captures a larger share of that market.
Analysts expect AMD’s revenue to rise 17% next year to $24 billion, but the company’s growing footprint in AI data center chips and a recovery of the PC market could help it generate a greater increase in revenue. This, in turn, could send AMD shares higher, which is why investors may want to stock up on semiconductor stocks immediately.
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Here’s why Nvidia and AMD are expected to soar in 2024 was originally published by The Motley Fool