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Equities

Nvidia & Partners Poised for Gain with Arm Chips by 2027

Morgan Stanley forecasts Arm-based AI PCs to dominate with a 95% market penetration by 2027, benefiting key tech stocks.

By Bill Bullington

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5/9, 19:28 EDT
ASML Holding N.V. - New York Registry Shares
Microsoft Corporation
NVIDIA Corporation
Palo Alto Networks, Inc.
QUALCOMM Incorporated
Taiwan Semiconductor Manufacturing Company Ltd.
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Key Takeaway

  • Morgan Stanley predicts Arm-based AI PCs will dominate with a 95% penetration by 2027, benefiting TSMC, MediaTek, Nvidia, Qualcomm, Microsoft.
  • Nvidia's partnership with MediaTek for a WOA PC CPU chip underscores industry collaboration towards AI-driven demand.
  • European semiconductor stocks ASML, VAT Group, ASM International show strong correlation with Nvidia's performance, reflecting global industry interconnectedness.

AI Revolution in PCs

The global semiconductor industry is on the brink of a significant transformation, driven by the integration of artificial intelligence (AI) into personal computers (PCs), as highlighted by a recent Morgan Stanley report. This shift is largely attributed to the need for more powerful PCs capable of running sophisticated AI applications, such as Microsoft's Copilot, which demands a computing capability of 45 tera operations per second. Arm-based central processing units (CPUs), known for their energy efficiency and thermal control, are at the forefront of this change, offering longer battery life and more compact designs. Morgan Stanley predicts that Arm-based AI PCs will initiate a transformation impacting the global semiconductor industry, with AI PCs expected to achieve a penetration rate of 95% by 2027, up from 8% in 2024.

Market Shifts and Stock Implications

The anticipated rise of Arm-based AI PCs is set to benefit several key players in the semiconductor and technology sectors. Morgan Stanley identifies TSMC, MediaTek, Nvidia, Qualcomm, Microsoft, and Arm itself as companies poised to gain from this shift. Additionally, PC original equipment manufacturers (OEMs) committing resources to Windows on Arm (WOA) devices are expected to see benefits. An interesting development is the expected partnership between Nvidia and MediaTek to launch their first WOA PC CPU chip, highlighting the collaborative efforts within the industry to adapt to the AI-driven market demand. Morgan Stanley has adjusted its price targets for MediaTek and TSMC, reflecting the optimistic outlook on these companies' growth prospects in light of the AI PC transformation.

Correlated Global Stocks

An analysis by CNBC Pro reveals that four stocks in the Stoxx Europe 600 index, namely ASML, VAT Group, ASM International, and BE Semiconductor Industries, have shown a strong correlation with Nvidia's share price movements. These companies, all integral to the semiconductor manufacturing process, have seen their stock prices moderately increase between 40% and 85% over the past year, in contrast to Nvidia's 210% surge. This correlation underscores the interconnected nature of the semiconductor industry and the ripple effects of advancements in AI technology on related stocks globally.

Investor Movements and Market Sentiments

Prominent investor Stanley Druckenmiller has reportedly trimmed his position in Nvidia, signaling a cautious approach despite the stock's significant gains. This move, along with other market activities and sentiments expressed by industry leaders, reflects the broader implications of the AI and semiconductor advancements on investment strategies. Companies like Palo Alto Networks emphasize the importance of cybersecurity in this evolving technological landscape, further highlighting the multifaceted impact of AI on various sectors.

Street Views

  • Morgan Stanley Analysts (Bullish on the global semiconductor industry and Arm-based AI PCs):

    "The global semiconductor industry is set for a 'transformation' — thanks to artificial intelligence PCs loaded with chips developed by British chip designer Arm... Running generative AI apps in the background will be a key challenge for future laptop PCs’ battery life and thermal design."

  • Morgan Stanley Analysts (Bullish on TSMC, MediaTek, Nvidia, Qualcomm, Microsoft):

    "What stocks will benefit from Arm’s foray into AI PCs? Morgan Stanley named TSMC, MediaTek, Nvidia, Qualcomm, Microsoft and Arm itself. It said PC original equipment manufacturers that 'commit resources' to WOA devices should benefit as well."

  • Morgan Stanley Analysts (Bullish on MediaTek):

    "It raised its price target for MediaTek by 8% to 1,388 New Taiwan dollars ($42.81), implying nearly 27% upside."

  • Morgan Stanley Analysts (Bullish on TSMC):

    "However, TSMC’s foundry market share for Arm-based CPU is much higher than that for x86... We therefore view Arm’s share gain over x86-based CPUs as positive for TSMC..."