The personal computer (PC) industry got a big boost from the novel coronavirus pandemic last year that sparked a rise in remote work and online learning, and industry watchers expect the momentum to continue in 2021 and beyond.
Canalys estimates that the global PC market could witness 8.4% growth in 2021. The market’s prospects appear to be sunny until 2025, as sales are expected to rise at a compound annual growth rate of 3.5%, with growth expected across all verticals such as desktops, notebooks, and tablets. However, the PC market could clock a higher pace of growth, as a 55% year-over-year spike in shipments (as per IDC) in the first quarter of 2021 points toward the market’s massive potential.
Investors can take advantage of this growth opportunity with the help of Advanced Micro Devices (NASDAQ:AMD) and NVIDIA (NASDAQ:NVDA) — two companies that stand to win big from the PC market’s growth. 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 revenue jumped more than 50% in 2020, thanks to strong sales across both desktops and notebooks. What’s more, its latest generation Ryzen 5000 processors turned out to be a runaway hit, as their quarterly sales at the launch were more than double those of any prior generation Ryzen desktop processor.
The Ryzen 5000 processors were so popular that AMD reportedly shipped 1 million of them in the fourth quarter of 2020, according to Mercury Research. That’s impressive considering that the Ryzen 5000 series processors went on sale only in the first week of November, and they were in short supply as AMD found it difficult to catch up to the unprecedented demand.
The good news is that AMD is working to bring more supply into the market. Supply chain sources indicate that the chipmaker is increasing Ryzen 5000 production by 20% in the current quarter over Q1 levels. Such a move should help AMD tap into the growing PC demand and improve its market share. More importantly, AMD’s increased pricing power in PC processors and its dominant position in the premium end of the market should translate into strong top- and bottom-line growth for the company as shipments increase.
AMD is also in a solid position to take advantage of an increase in notebook sales. The company’s latest Ryzen 5000 notebook processors are expected to be launched in 50% more designs as compared to the prior-generation platform. AMD’s Ryzen 4000 processors powered 100 notebook models, which means that the latest platform could find its way into 150 laptops and notebooks and pave the way for stronger growth in 2021.
AMD’s computing and graphics segment accounted for two-thirds of the company’s revenue last year. The segment looks set for another stellar year thanks to the tailwinds in the PC processor market. This is one of the reasons why AMD expects to deliver a terrific increase in revenue once again this year, making it one of the top tech stocks to take advantage of higher PC sales.
Higher 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 around 3 million units over 2019. The shipments could have been much higher if the market hadn’t been constrained by short 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 in 2021 and beyond, which is not surprising given the PC market’s momentum. According to a third-party report, gaming PC sales could increase another 25% by 2024 after recording 16% growth in 2020.
Additionally, Mordor Intelligence estimates that GPU sales could clock a CAGR of 13% over the next six years. This combination of higher gaming PC sales and the expansion of the GPU market should ideally lead to higher 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 substantially increased its discrete GPU market share in the fourth quarter of 2020 thanks to its RTX 30 series cards, which are in huge demand because they deliver a big increase in performance over their predecessors at a compelling price point. As a result, NVIDIA’s massive installed base of GPU users on older-generation cards are upgrading to the latest chips.
This is one of the reasons why NVIDIA believes that GPU demand will exceed supply this year despite the company’s efforts to ramp up production. As such, NVIDIA seems to be in the middle of a GPU upgrade cycle that’s likely to continue until the company makes enough cards to meet the end-market demand — something that’s unlikely to happen this year as per the latest comments from management.
Additionally, the supply shortage and higher demand can send GPU prices higher, even though they are selling at substantially inflated prices compared to the official retail price. All of this makes NVIDIA a solid play on the PC gaming market, as the company gets half of its revenue from selling discrete gaming GPUs.
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