The gaming environment has defied the ravages of the COVID-19 pandemic, which is seen as a positive for gaming chip makers Advanced Micro Devices, Inc. AMD and NVIDIA Corporation NVDA, according to an analyst at BofA Securities.
The Analyst: Vivek Arya maintained Buy ratings on shares of AMD and Nvidia. The analyst has a $65 price target for AMD and raised the price target for Nvidia shares from $420 to a Street-high $460.
The Thesis: The gaming environment remains robust, even ahead of the second-half launch of new gaming consoles from Microsoft Corporation MSFT and Sony Corp SNE, Arya said, citing Steam's GPU survey as well as other checks. (See his track record here.)
Nvidia In Sweet Spot Of Upgrade Cycle: Nvidia's share of Steam gamers remained unchanged month-over-month at 73.5%, and the installed base penetration of Turing cards grew 212 basis points from last month and was up six times since last May, Arya said.
The stock-outs for Nvidia's most popular SKUs outlined by channel checks could be a result of better demand and prudent management of inventory ahead of the second-half launch of 7nm chips, the analyst said.
Just 9% of Nvidia gamers own a GPU on par with the performance of PS5 and Xbox X, which are expected to become the new bar for mainstream performance, he said.
The new consoles could catalyze a major upgrade cycle for Nvidia, either to Turing or next-gen 7nm Amper,e which could be unveiled by midsummer, Arya said.
As gamers begin to upgrade to higher ASP cards, Arya sees upside versus the Street's conservative estimate of 16% growth in the second half versus the first.
AMD Steadily Making Headway: Notwithstanding the fact that about 76.8% of the gamers use Intel Corporation INTC CPUs, AMD has made progress, with its market share rising 170 basis point month-over-month to 23.2%, the analyst said.
The 600-basis point improvement in AMD's market share in CPUs since mid-2018 highlights the improved competitiveness of its Ryzen CPUs, he said.
AMD's latest Navi GPU family accounts for just 6% of AMD's installed base, though it has caught on faster than the prior generation Vega, Arya said.
"The majority (52%) of AMD gamers still use legacy GPUs, though we expect this to change once AMD launches "Big Navi" targeted at more high-end gamers sometime in 2H20."
Recent media reports suggesting a more favorable entry-level price point for the PS5 and Xbox X are a positive for AMD given its 100% game console processor share with 20%-40% higher content generation-over-generation, according to BofA.
The Price Action: At last check, AMD shares were adding 0.1% to $53.46, while Nvidia shares were gaining 1.61% to $399.92.
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