Advanced Micro Devices(NASDAQ:AMD)and Nvidia(NASDAQ:NVDA)are likely to keep benefiting, as the graphics chip market is "still early in [the] upgrade cycle" and the second-half of the year should see stronger growth, as supply and mix improve.
Analyst Vivek Arya, who has buy ratings on both stocks, noted that the fourth-quarter gaming environment was "strong" with record discrete GPU sales of $3.66 billion, up 42% year-over-year, even with supplies falling 1% sequentially.
"Still, penetration of NVDA latest Ampere generation (with avg. ASP of $475, 15-80% above prior [generation] Turing/Pascal) is still just 15% of total NVDA gamers (per Steam’s January hardware survey), meaning there is still plenty of room for ASP expansion as NVDA gamers upgrade to latest [generation] once SKUs become available (still completely sold out and re-selling 2x MSRP)," Arya wrote in a note to clients.
"We expect supply could remain constrained into the 2H 2022 which, in our view, could drive stronger for longer sales growth," the analyst added.
AMD and Nvidia were both higher in premarket trading, each gaining nearly 2% to $117.84 and $238.29, respectively.
On Tuesday, Bernstein upgraded Advanced Micro Devices to outperform for the first time in 10 years.