Back in the 1990s, at the dawn of the internet, computer makers like Dell (DELL) and HP (HPQ) were the hottest stocks on Wall Street. During that time, the PC market grew like wildfire as consumers rushed to buy computers and get connected to the internet.
But by the 2010s, the market became saturated. Most people already had a desktop computer… and a laptop… and a tablet.
So, the market stopped growing. Global PC sales have been flat since about 2015. As a result, PC stocks have been flat, too.
In other words, over the past decade, the PC market hit a wall – and those stocks have gone absolutely nowhere.
But we could be looking at the start of a PC upgrade “supercycle” in 2024 and ’20’25, which could – for the first time in over 20 years – make PC stocks the hottest stocks on Wall Street again.
And it’s all thanks to AI.
An AI-Driven PC Boom?
In 2024, both Dell and HP plan to launch the first generation of what they’re calling “AI PCs” – PCs with artificial intelligence built into them.
They’ll come with the standard Central Processing Unit (CPUs) and Graphics Processing Unit (GPUs) that all advanced computers are outfitted with today. But they’ll also have Neural Processing Units (NPUs), which allow for AI to be run locally on the computers themselves.
Today, the only way to access AI is through the cloud. Users go to a website or mobile application, and a third-party cloud service provider delivers the AI service. This is called the AI-as-a-Service (AIaaS) model.
Typically, in this model, the cloud service provider gains access to users’ data and charges a fee for them to use that service regularly. Not to mention, it also requires the internet to use it.
But with AI PCs, there won’t be any data-sharing or recurring fees. Users will have artificial intelligence running locally and privately on their own computer. And they’ll be able to use it whenever, wherever – even without an internet connection.
Imagine being on your computer, pulling up Microsoft Office or Excel, and boom; there’s an AI assistant right there to help you craft whatever document or spreadsheet you’re working on.
You don’t need to open a separate window for ChatGPT or download and pay for Copilot. You just tap into the AI that is already built into your computer.
That is the widely-accessible future that AI PCs will usher in next year.
And we think this future has huge economic potential.
The PC Market Could Turn Red-Hot in a Flash
Obviously, on the consumer side of things, it’s easy to see how these AI PCs become ubiquitous. One person buys one. Then everyone around them realizes how cool it is to have artificial intelligence built into your own computer. And suddenly, we see a major snowball effect, where everyone wants and gets their own AI PC.
But the bigger potential here lies on the enterprise side of things – because that’s where the benefits of these next-gen PCs will really shine.
It’s costly for a company to buy every employee a license to ChatGPT or Copilot. It’s also scary to openly share all your data with cloud AI platforms. But at the same time, it’s now absolutely necessary for companies to get the power of artificial intelligence into their employees’ hands.
And the only way to deploy artificial intelligence while minimizing cost and protecting data is to use AI PCs.
Therefore, we believe that when Dell and HP launch their AI PCs in 2024 and ‘25, companies across America will go on an AI PC shopping spree. It’s very likely that your next company laptop will be an AI PC.
What does that mean for the sleepy PC market?
The Final Word
According to research firm Canalys, the global PC market is set to grow by 8% in 2024 after contracting in both 2022 and ‘23. Then it’s expected to rise another ~20% in 2025.
And this coming AI PC supercycle is creating some compelling opportunities in PC stocks.
DELL only trades at 9.8X next year’s earnings estimates. HPQ trades at 8X next year’s earnings.
Those are dirt-cheap multiples. They only make sense if Dell and HP aren’t going to grow over the next few years. But both companies could grow by more than 10% over the next two years.
Therefore, DELL and HPQ offer two underrated and undervalued ways to play the AI Boom.
I wouldn’t be surprised if these AI PC stocks go parabolic next year and end up being some of the market’s biggest winners.
But in fact, these AI PC stocks aren’t my favorite way to play the AI trend in 2024.
Rather, that spot is reserved for a different stock – one that is trading for just over $3 per share and could easily soar above $30 next year.