Advanced Micro Devices, Inc. AMD and NVIDIA Corporation NVDA are among the best performing tech stocks in the year-to-date period. Despite the runup, an analyst at BofA Securities recommends buying into these GPU plays.
Vivek Arya has Buy ratings on both Nvidia and AMD shares, with price targets of $420 and $65, respectively.
Arya said the $8 billion market in 2019 comprised of PC gaming, which accounted for 70% of the total market and declined 14% year-over-year, traditional PCs, accounting for roughly 12% of the market and showing 3% year-over-year growth, and gaming consoles, which made up the remaining 18% of the market and declined 40% year-over-year.
In the first quarter of 2020, the overall market fell 17% sequentially, Ayra said but Nvidia gained 300 basis point of unit share to 75%, thanks to a strong mix-shift toward gaming GPUs, especially in notebooks.
The analyst noted Nvidia's high-end desktop line-up plunged 54% quarter-over-quarter, suggesting retailer/etailer high-end desktop inventory has been fully depleted to service the sudden surge in stay-at-home gamers.
"We think this bodes well for a Q2/Q3 channel refill and 2H20/21 product cycle driven growth recovery given still intact secular trends," Arya wrote in a Tuesday note.
The analyst expects GPU industry sales to rebound by 16% year-over-year in 2020, partly due to the easier comparison. Specifically, PC gaming GPUs are likely to grow 11% year-over-year, and game consoles are expected to jump 43%, while low-end PCs are expected to remain flat.
BofA expects multiple catalysts for PC gaming, including mix benefit from high-powered new game consoles, which are likely on par with Nvidia's RTX 2060/70 Super cards priced at $399/$499, and new product cycles from Nvidia and AMD.
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