AI PC demand might not live up to hype: New Street Research

Intel (NASDAQ:INTC) and Advanced Micro Devices (NASDAQ:AMD) both expect the emergence of artificial intelligence PCs to drive growth, but early indicators show less-than-expected demand, according to a report by New Street Research.

However, the supply chain remains optimistic that the Windows 10 end-of-life event and AI PCs will drive growth during the fourth quarter of 2024 and into 2025.

During the second quarter of 2024, PC sell-in shipments increased only 3% year over year. For the entirety of 2024, PC shipments are now expected to be flat year over year. Even with the looming PC refresh cycle, the International Data Corporation only expects 5% growth in 2025.

“In notebooks, AMD gained 1pt of unit share with the continued ramp of Ryzen 7000-8000 (4nm), while Alder Lake (Intel 7) and older SKUs declined, as inventories built up during 1Q flushed, offsetting the Meteor Lake (Intel 4) ramp,” said New Street analysts, led by Pierre Ferragu. “Intel ASPs were down 2% QoQ vs. up 13% at AMD, resulting in AMD revenue share up 3pts.”

“For PCs overall, AMD’s share was up 2pts to 18%,” Ferragu added. “Inventory movements could explain some of it, but the reality is that Intel is still losing share despite being back at the leading edge in notebooks.”

The PC demand that is materializing, appears to be driven by enterprise customers, while the outlook for consumer-related demand is less optimistic.

“While we expect to deliver sequential revenue growth through the rest of the year, the pace of the recovery will be slower than expected, which is reflected in our Q3 outlook,” Intel reported in its latest quarterly earnings call.

However, AMD sounded more positive regarding PC demand during the third quarter.

“We are launching Zen 5 desktops and notebooks with volume ramping in Q3,” AMD reported during its second quarter earnings call. “The AI PC element is certainly one element of that, but there is just the overall refresh. Usually, desktop launches going into a third quarter are good for us, and we feel that the products are very well positioned.”

New Street Research finds that inventories for PC CPUs are already elevated again. A further increase in inventories could prompt disappointing demand for CPUs entering 2025.

The research firm also finds slight evidence for AI PCs pushing demand higher.

“The supply chain wants to believe in an AI-driven refresh cycle, but we see no evidence of it,” Ferragu noted. “Gen AI will revolutionize the user experience for PCs and personal devices more broadly, but the revolution won’t be hardware-driven and won’t create a near-term product cycle, in our view. Killer use cases are still quite remote and will gain adoption through software.”

Still, New Street believes AMD remains well positioned to prosper from AI in 2025 due to its MI300 GPU series.