Why AMD, Nvidia and Seagate Will Benefit From a PC Shipment Rebound

NEW YORK (TheStreet) -- Shares of PC-dependent companies including Hewlett-Packard (HPQ) and Microsoft (MSFT) have been among the market's top performers in 2014. Both of these companies have been up by double-digits, as much as 27% and 15% respectively. Opportunistic investors knew something.

On Wednesday, the rest of the market gained that knowledge.

Market research firm Gartner said the decline in PC shipments have been stabilized. Not only does Gartner predict continued deceleration of the decline for the rest of 2014, the firm anticipated a significant rebound in 2015.

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Ranjit Atwal, Gartner's research director noted that "2014 will be marked by a relative revival of the global PC market." He's right. Worldwide PC shipments are expected to decline 2.9% this year. It's not a great number. But considering 2013's decline was close to 10%, it's colossal victory.

Gartner also projects a modest 2.6% PC-shipment increase in 2014, going from 308 million units to 316 million. This would get global shipments almost back to 2013 levels, indicating that PCs, which were once proclaimed dead are alive and kicking.

This news tells me two things. First and the most obvious, the worst of this PC sales erosion is over. Secondly, and perhaps more important, there is still money to made in this industry, which should also bode well for other PC-dependent companies like semiconductors and hard drive manufacturers, among other segments.

Gartner's news is positive. While I don't expect PC sales to revert back to levels of a decade ago, large fortune 500 companies still rely on them to operate their businesses -- making companies like Advanced Micro Devices (AMD) and Nvidia (NVDA) solid if not sure bets to participate in a PC recovery.

Consider, even amid periods of weak PC sales, Nvidia offset the drought with strong demand within its Tegra chip line. The company's management already projects to grow earnings at a 7% annual rate. With the stock trading just two times its enterprise value and less than three times revenue, these shares are a bargain.

With Nvidia's new Tegra K1 chip powering Google's (GOOGL) Project Tango tablet, the stock should experience a steady upward climb, especially if Gartner's numbers prove to be conservative.

AMD should benefit for some of the same reasons. AMD stock is down almost 50% in the past two years. But new management has transitioned the company away from being a pure-play PC shop to a strong player in video game chip technology.

The transition is going to take time. But with a stabilized PC environment, AMD, which is the No. 2 chip company behind Intel (INTC), should begin to see top-line growth in its PC business as early as the next quarter. Assuming that management can execute its gaming strategy, while (at the same time) growing its PC segment, AMD will accelerate the timeframe of turning cash flow positive.

What's good for chip companies is also good for storage companies like Seagate (STX), which has avoided a complete collapse of the hard disk market. All of the big talks about Big Data has done little of rattle Seagate's strong fundamentals. The company has successfully transitioned its business away from HDD (hard disk drive) to the new standard SSD (solid state drive).

As EMC (EMC) and NetApp (NTAP) have proven, growth in enterprise storage can be lucrative. That and Seagate's exposure to the gaming industry which adopted SSD standard have proven to be extremely profitable.

Still, a revival of the PC industry will add exponential value to Seagate's long-term business. For the same reason, investors may look to rival Western Digital (WD). Like Seagate, Western Digital has proven there is life beyond the PC. But life and the company's balance sheet is better when PC's are thriving. And for that matter, the expected recovery in PCs is not a surprise.

Intel, whose shares have been up by as much as 23% already told us Gartner's news was coming. While boosting its second-quarter and full-year revenue guidance several weeks ago, Intel cited higher PC unit shipments. While also boosting its said full-year gross margin projection, Intel cited "expected improvements in unit cost and volume."

But I do need to offer a bit of caution. Tablets and mobile devices, which began the PC decline, are still growing. There is no sign of slowing down.

It also shouldn't be ignored that the PC revival comes on the heels of Microsoft ending its support of the Windows XP operating system. This decision likely motivated companies to accelerate their PC purchases with the most recent operating systems. So it remains to be seen to what extent PCs can coexist with mobile devices.

While we wait, AMD, Nvidia, Seagate and Intel should be decent buys, if only for short-term trades.

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.

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