This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.
Weak demand after two years of solid growth is taking a toll on personal computer (PC) sales in 2022, and market research firm IDC's latest report suggests that the situation won't get better anytime soon.
IDC reports PC shipments fell 15% year over year in the third quarter of 2022. Aside from Apple, all the major PC original equipment manufacturers (OEMs) saw a big decline in shipments last quarter. Market leader Lenovo, for instance, had a 16% decline in shipments over the prior year, while HP and Dell saw greater declines of 28% and 21%, respectively.
The sharp drop in PC shipments doesn't bode well for Nvidia (NASDAQ: NVDA), Advanced Micro Devices (NASDAQ: AMD), and Intel (NASDAQ: INTC). These chipmakers are reeling under the impact of already weak PC shipments that have led to a drop in the demand for their processors. IDC's report indicates that things could be about to get worse for these semiconductor giants and their stock prices could drop further.
Nvidia, AMD, and Intel could see further sales declines
Nvidia sells graphics processing units (GPUs) that are used in PCs for content creation and gaming. Intel is the leading supplier of central processing units (CPUs). AMD, meanwhile, supplies both CPUs and GPUs for the PC market.
The sharp decline in PC shipments this year has weighed heavily on these companies. Intel's revenue, for instance, dropped 17% year over year in the second quarter to $15.3 billion. Nvidia's gaming revenue fell 33% year over year in the fiscal second quarter to $2.04 billion. The graphics specialist estimates that gaming revenue will drop further in the current quarter, and IDC's latest report suggests why that's going to be the case.
AMD, which seemed insulated from the PC market's troubles in the first half of the year, has also succumbed to the end market's weakness. The chipmaker slashed its Q3 revenue guidance by $1.1 billion to $5.6 billion. It expects year-over-year revenue growth of 29% now instead of the prior expectation of 55%. The company blamed "reduced processor shipments due to a weaker than expected PC market and significant inventory correction actions across the PC supply chain" for the massive reduction in its guidance.
IDC estimates that PC sales could drop nearly 13% for the full year to 305 million units, which points toward another year-over-year drop in sales during the fourth quarter. Total PC shipments stood at 226 million units in the first three quarters of 2022, which means that 79 million units are forecasted to be shipped in Q4. That would translate into a decline of nearly 15% over the year-ago quarter's shipments of 92.7 million.
As a result, Nvidia, AMD, and Intel's guidance for the final quarter of 2022 may not be up to investors' expectations as the PC market's contraction will limit their opportunities to boost sales or stage a recovery.
Analysts expect Intel's revenue in the quarter that ends in December to decline 14% year over year to $16.7 billion. Nvidia's revenue for the fiscal fourth quarter (which coincides with the final two months of 2022) is anticipated to drop 19% year over year. AMD is still expected to clock 26% year-over-year growth in Q4, which the company may be able to achieve thanks to strength in other areas such as gaming consoles and data centers.
However, it won't be surprising to see a tempered forecast from AMD on account of lower processor sales and a drop in the average selling prices of CPUs, the two factors that affected its performance in Q3.
What should investors do?
Intel is trying to turn its business around and prevent more share losses to AMD. But that looks unlikely thanks to the latter's advantage on the technology front. So, there's a strong chance of Intel stock falling further. The stock is already down about 49% so far in 2022, which is why investors may want to hold off on the stock right now.
Nvidia stock is down about 59% in 2022. Given that gaming is one of its biggest businesses and produced 30% of the top line last quarter, the oversupply in GPUs on account of weak PC demand and higher inventories is likely to weigh on this segment as the company has been forced to reduce prices to sell its chips.
Additionally, the government-imposed restrictions on sales of Nvidia's data center chips to China have knocked the wind out of the sails of its data center segment. As Nvidia stock trades at a rich 38 times earnings even after its sharp decline in 2022, a turnaround in its fortunes appears to be difficult since it may not be able to clock the high levels of growth required to justify the valuation.
AMD, meanwhile, looks like the only stock that may be worth buying amid the PC market weakness. The stock is not only cheap at 24 times trailing earnings and 12 times forward earnings, but AMD is also managing to post impressive growth despite the headwinds. As such, investors may want to accumulate AMD stock if it falls further due to negative investor sentiment as it is becoming more of a value play thanks to its impressive growth and cheap valuation.
This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.
