What happened
Shares of Microsoft (MSFT 1.57%), Advanced Micro Devices (AMD 2.33%), and Qualcomm (QCOM 1.02%) all rocketed higher Thursday. As of 3:33 p.m. ET, they were up 4%, 7.2%, and 3.8%, respectively.
The broader market indexes were in positive territory for the day, too, but these three stocks more likely rose due to a prominent semiconductor sector analyst calling a "bottom" in consumer electronics, specifically PCs and smartphones. In addition, Microsoft showed off some upcoming integrations between ChatGPT and its Office software suite.
NASDAQ: MSFT
Key Data Points
So what
On Thursday, Susquehanna analyst Christopher Rolland essentially called the bottom in the consumer electronics sector, upgrading Qualcomm (QCOM 1.02%) and AMD's rival Intel (INTC +1.14%), among others. "We believe the acute portion of the semiconductor downcycle for the handset, PC and consumer end markets has passed," he said in a research note to clients.
Of course, if sales of PCs and smartphones really are going to get back to growing soon, that would also be a big plus for AMD, which has taken lots of market share from Intel in the PC chip market over the past of couple years. And of course, it would also help Microsoft, which licenses its Windows operating system to all non-Apple PC vendors and also sells its own Surface line of devices.
The call dovetails nicely with Wednesday's Digitimes report that said Taiwan Semiconductor Manufacturing (TSM +0.47%) is seeing a recovery in its fab utilization rates after a multi-quarter downturn.
Some may wonder how PC and smartphone sales could be headed for an upswing if the economy is -- as many fear -- about to slip into a recession. Well, for those who haven't been paying attention, PCs and smartphones recorded some of their worst-ever year-over-year sales declines in 2022. Between the rapid rise in interest rates last year and the fact that people and businesses had loaded up on devices during the first couple of years of the pandemic, the PC and smartphone markets went into their own recessions about a year ago.
So, while other parts of the economy may be beginning to see a downturn, the tech world has been in one for some time already. And at some point, all of those devices bought in 2020 and 2021 will have to be replaced.
In addition, Microsoft unveiled how it will be incorporating the generative AI capabilities of Chat-GPT into its Office software suite. The Office suite is the standard upon which business gets done for much of the world, with about $45 billion in annual revenues. The upcoming Microsoft 365 CoPilot, which will be rolled out in the next couple of months, will be able to write documents in Word, make Powerpoint presentations, and -- who knows, maybe make complete Excel financial models in seconds? -- all with just some short natural-language prompts.
Now what
In addition to a potential PC sales turnaround, Microsoft has been riding a considerable wave of enthusiasm, especially since the updated ChatGPT-4 was unveiled earlier this week.
Considering all of these factors, 2023 looks likely to be a better year for the technology sector, provided that the recent crises among the U.S. regional banks and troubled European giant Credit Suisse (CS +0.00%) don't lead to a wider financial crisis.
Remember, the technology sector slumped hard last year even as many parts of the economy remained strong. So it's possible that its health could begin to improve in 2023 even if the rest of the economy stagnates or goes into a mild recession.
Meanwhile, while there was a post-pandemic hangover for tech in 2022, the digitization trends accelerated by the pandemic are still with us, and should continue through this decade. The advent of ChatGPT late last year was just another reminder that the world is becoming increasingly digital, albeit in fits and starts. The tech sector can be violently cyclical, but it should grow faster than the economy over the long term.
