The global semiconductor industry is set for a “transformation” — thanks to artificial intelligence PCs loaded with chips developed by British chip designer Arm , according to Morgan Stanley. That’s because more powerful PCs are needed to run AI applications. Morgan Stanley noted that Microsoft requires new AI PCs to have a computing capability of 45 tera operations per second to properly run its Copilot — its AI tool — in its laptops. “Running generative AI apps in the background will be a key challenge for future laptop PCs’ battery life and thermal design,” the bank’s analysts wrote in a May 7 report. Arm-based central processing units are known for energy conservation and thermal control, which lead to longer battery life and more compact designs, Morgan Stanley noted, adding that they “exhibit a notable edge in power efficiency.” The bank therefore expects Arm-based AI PCs to “start a transformation that will affect the global semis industry.” Currently, normal Windows PCs are running on processors such as those made by Intel , AMD and Qualcomm . Morgan Stanley added it believes that Apple may expand its Arm-based CPU to AI servers as well. The bank estimates that AI PCs will reach a penetration rate of 95% by 2027 — up from 8% in 2024. On the assumption that Nvidia and fabless semiconductor firm MediaTek takes 50% market share in Windows on Arm (WOA) PCs in 2028, total shipments of WOA PC chips should reach 65 million in 2028. Shipments for such chips in 2024 are at 2 million. Windows on Arm is the term for AI PCs working on Arm chips. Stocks 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. It says the expected partnership between Nvidia and Taiwan’s MediaTek to launch their first WOA PC CPU chip is an “interesting story.” Both companies are already in a partnership to develop chips and software for automobiles. It raised its price target for MediaTek by 8% to 1,388 New Taiwan dollars ($42.81), implying nearly 27% upside. As for TSMC, Morgan Stanley says its foundry market share with the “x86” CPU market will grow. The x86 is a widely used architecture for CPUs. That’s thanks to Intel’s outsourcing of its CPU production and AMD’s market share gain, which will bode well for TSMC, given that it’s AMD’s major foundry partner. “However, TSMC’s foundry market share for Arm-based CPU is much higher than that for x86, as Intel still produces most of its own x86 CPU products,” Morgan Stanley said . “We therefore view Arm’s share gain over x86-based CPUs as positive for TSMC, and think Arm CPU proliferation could bring more incremental revenue to TSMC than x86 in the coming years.” The bank raised its price target for TSMC by 8% to NT$928, representing a potential 16% upside. — CNBC’s Michael Bloom contributed to this report.
Tech stocks set for a boost from Arm-based PC chips
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