While they haven’t received the same levels of hype as semiconductor stocks, the AI super cycle should also be a tailwind for underrated, older tech stocks like HP Inc. (NYSE:HPQ) as well.
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I’m bullish on this overlooked “old tech” stock based on its new lineup of AI-enabled laptops, the coming hardware refresh cycle, its modest valuation, and attractive dividend yield.
AI-Driven Refresh on the Way?
Shares of companies like Nvidia (NASDAQ:NVDA), which are powering the generative AI revolution with their semiconductors, have skyrocketed since the launch of ChatGPT and other consumer-facing AI applications.
And while some of these supercharged tech stocks and semiconductor stocks on the cutting edge of the new technology are indeed exciting, old tech hardware companies like HPQ should benefit from AI-driven tailwinds as well. As usage of AI-powered applications grows more widespread, consumers and businesses will demand PCs that are up to the task of more intensive AI workloads.
In May, the company unveiled its new lineup of AI PCs, the consumer-focused HP OmniBook X AI and the enterprise-focused HP EliteBook Ultra AI.
What’s the difference between these AI PCs and a normal, traditional laptop? The Verge explains that the neural processing unit (NPU) of an AI PC must be able to handle 40 trillion operations per second (TOPS), and HP’s new offerings can handle 45 trillion. This means that HP’s AI PCs, powered by Qualcomm’s (NASDAQ:QCOM) Snapdragon processors, are better equipped to handle Microsoft (NASDAQ:MSFT) Copilot features, ChatGPT prompts, and other generative AI tasks like image and video generation.
The HP OmniBook X AI will cost $1,199, and the HP EliteBook Ultra AI comes with a price tag of $1699.99, and they will begin shipping on June 18.
As advances in AI unlock new capabilities, it stands to reason that consumers will increasingly want access to these features and need hardware that is up to the task, which could drive a meaningful PC refresh cycle for companies like HPQ. HP CEO Enrique Lores says that 10% of PCs sold in 2024 will be AI PCs but that this will increase to 60% over the next three years.
In addition to the potential AI-driven refresh, Lores says that the company is also benefiting from additional catalysts. These include enterprise customers buying new PCs ahead of Microsoft ending support for Windows 10 in the fall of 2025 and other customers upgrading pandemic-era computers that are now beginning to grow outdated.
A Rare Bargain in the Tech Sector
Shares of HP are incredibly cheap. The stock trades at just a mere 10.5 times consensus 2024 earnings estimates, meaning that it enjoys less than half of the valuation of the S&P 500 (SPX), which currently trades at 23.4 times earnings.
While they aren’t apples-to-apples comparisons, given that each of these companies has other business segments in addition to computers and laptops, HP is far cheaper than the likes of Dell (NYSE:DELL) and Apple (NASDAQ:AAPL). Those two companies trade at 17 and 32.4 times forward earnings estimates, respectively.
HPQ stock likely deserves some discount to these stocks, given that it is home to the fairly unattractive printer business. However, at just 10.5 times earnings, the stock looks like it offers significant room for upside as well as plenty of downside protection.
HPQ’s Dividend
In addition to this inexpensive valuation, HPQ also pays a dividend that yields an attractive 3.0%. This is more than double the yield of the S&P 500, which currently yields just 1.4%, and far higher than its tech-sector peers, as the tech-focused Nasdaq 100 (NDX) yields just 0.8%.
Is HPQ Stock a Buy, According to Analysts?
Turning to Wall Street, HPQ earns a Moderate Buy consensus rating based on four Buys, four Holds, and one Sell rating assigned in the past three months. The average HPQ stock price target of $34.78 implies 4.6% downside potential from current levels.
The Takeaway: An Underappreciated AI Stock
I’m bullish on HPQ because while it certainly isn’t the most hyped AI stock, there’s no reason that HPQ can’t benefit from AI-driven tailwinds, and the company is well-positioned to benefit from the upcoming hardware refresh cycle, thanks to its lineup of new AI PCs.
Plus, shares are surprisingly cheap, trading at just 10.5 times forward earnings, making HPQ a rare value stock within the tech sector. Lastly, the company’s 3.0% dividend yield is another reason to consider the stock. Add it all up, and you have a cheap stock with a nice dividend that also looks like a beneficiary of long-term AI trends, offering investors multiple ways to win.
