Semiconductor stocks smashed the market in 2023, soaring by a whopping 66 per cent compared to the measly 24 per cent rise of the S&P 500 index as of 27 December.
The huge demand for artificial intelligence (AI) chips was the main reason behind the stunning surge in semiconductor stocks this year bringing much joy to Nvidia and AMD shareholders.
However, things are about to get even better in 2024 thanks to a new game-changer.
Sales of personal computers (PCs) have been going down the drain every quarter since the start of 2022. That market saw a massive spike in demand in 2020 and 2021 due to the coronavirus crisis, which made many people buy new PCs as they switched to doing more learning, working, and playing at home. But that demand vanished in 2022 and the market is expected to have shrunk even more in 2023.
It looks like 2024 could be the year when PC sales bounce back. Market research firm IDC predicts a 3.4 per cent increase in PC shipments in the new year, while Canalys is forecasting a jump of eight per cent.
Both firms claim that the growth will be driven by the arrival of AI-powered PCs, an ageing bunch of old computers, and the urgent need for users to upgrade to Windows 11 as Microsoft is set to pull the plug on Windows 10 in October 2025. IDC is expecting the PC market to grow by 3.1 per cent every year until 2027.
A comeback in PC sales would be great news for Nvidia and AMD, as both companies make chips for PCs and depend on this space for big chunks of their sales.
People use Nvidia's graphics cards in PCs to run graphics-heavy tasks like gaming, 3D rendering, and video editing. Nvidia has a market share of more than 80 per cent in separate graphics cards, and it's already seeing a nice recovery in sales of its PC graphics cards as manufacturers stock up their shelves in anticipation of a revival in demand.
In its financial year 2024 second quarter, which ended July 30, Nvidia's gaming revenue shot up 22 per cent year over year to $2.5 billion. This was followed by a year-over-year increase of 81 per cent in the next quarter. Gaming made up nearly 16 per cent of Nvidia's revenue in the latest quarter. The gaming business's amazing momentum lately is likely to boost the AI-fuelled growth of its data centre business and lead to impressive growth in 2024.
Nvidia bosses said during the November conference call with analysts that "generative AI is quickly becoming the new must-have app for high-performance PCs."
The chipmaker is aiming to target this market with a new platform that will massively increase the speed of AI tasks on PCs, which could lead to a surge in the use of its graphics cards.
AMD has also seen a sharp turnaround in its PC-focused business, which includes central processing units (CPUs) used in desktops, laptops, and workstations. The chipmaker's revenue from this segment went up 42 per cent year over year to $1.5 billion in the third quarter and made up 26 per cent of its sales.
AMD bosses said in an October conference call with analysts that sales of its Ryzen AI PC processors "grew a lot in the quarter as stock levels in the PC market got back to normal and demand started following seasonal patterns."
Boss Lisa Su also said that AMD has launched more than 50 new laptop models powered by the Ryzen AI processors, which have an AI engine on the chip to handle AI tasks.
AMD says that it is "working closely with Microsoft on the next generation of Windows that will use our AI engine on the chip to enable the biggest improvements in the Windows user experience in more than 20 years."
AMD seems ready to ride the wave of recovery in PC sales, especially considering that it has been taking a bigger slice of this market.
Analysts expect AMD's revenue to go up 17 per cent next year to $24 billion. Still, the company's growing presence in the AI data centre chip space and a comeback in the PC market could help it deliver a stronger revenue jump. This, in turn, could send shares of AMD higher.