NEW YORK (TheStreet) -- "Experts" have proclaimed the personal computer industry dead for several years. But while boosting its second-quarter and full-year revenue guidance Thursday, semiconductor giant Intel (INTC) insists PCs are alive and kicking.
While citing higher PC unit volume, Intel now expects second-quarter revenue to be $13.7 billion — plus or minus $300 million, and exceeding its prior guidance of $13 billion. Management also expects the midpoint of its gross margin to be 64%, increasing by 1%.
At the same time, management said full-year gross margin is now projected to fall in the upper half of the previous range of 61%, to which Intel cited “expected improvements in unit cost and volume.” It remains to be seen the extent of these results from a profitability standpoint. But suffice it to say, the worst of this PC sales erosion is over.
Sales aren't as robust as they were a decade ago. But large Fortune 500 companies still rely on them to operate their businesses. Investors might have missed on Intel's upside surprise, but other PC-dependent companies like Advanced Micro Devices and Nvidia should see an added boost to their long-term projections.
I see both Nvidia and AMD climbing 24% and 40%, respectively, in the next two to three years. Here's why.
As with Intel, Nvidia still relies on PCs for a significant portion of its revenue. That's not to be confused with the company being strictly a PC story. Nvidia shares are down 24% over the past three years. Shares are up 24% year to date and can still reward investors with additional gains.
Even amid weak PC sales, Nvidia has been able to offset the drought in strong demand within its Tegra chip line. And with its new Tegra K1 chip powering Google's (GOOG) experimental Project Tango tablet, Nvidia's stock can see an immediate boost should this tablet take off.
Also consider that over the next five years, Nvidia is projected to grow earnings at a 7% annual rate. So with the stock trading just two-times its enterprise value and less than 3-times revenue, these shares are a bargain, especially when factoring that its PC business might be on firmer footing than initially projected.
For all of the same reasons, investors should now consider AMD, whose stock is down almost 50% in the past two years. Like Intel ADM dominated the sector at the height of the PC industry. The company just couldn't compete with the emergence of mobile devices. AMD was left out. But new management has transitioned the company away from being a pure-play PC shop to a strong player in video game chip technology.
What's more, AMD has become more vocal about its direction. It's also encouraging that management has released a new graphics chip called Mantle to counter Microsoft (MSFT) DirectX, which has become a standard in the gaming world. All told, AMD seems like a strong bet to regain it's two-year high in the next two years.
If management can execute its gaming strategy, while (at the same time) stabilizing its PC segment, ADM can become cash flow positive in a much quicker time than expected.
It shouldn't be ignored that Intel's confidence and revised guidance comes on the heels of Microsoft having ended its support of the popular Windows XP operating system. I believe this decision motivated companies to accelerate their buying of updated PCs within the most recent operating systems.
So investors shouldn't ignore the risk that the boost in revenue to Intel, Nvidia and AMD may be short-lived. Even so, all three companies are either transitioning out of or they're working to supplement their PC businesses. For Intel it's the Internet-of-Things, Nvidia has it Tegra mobile chip business and AMD is growing respectably in gaming technology.
At the time of publication, the author held no position in any of the stocks mentioned.
This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.