In this piece, we will take a look at the 15 best hardware stocks according to Goldman Sachs.
The soaring popularity of artificial intelligence for consumer and business applications has injected fresh life into the computing industry. If we’re to rewind the hands of time and go back to 2022, the stock market environment was considerably different from what it is now. All major technology stocks, including those that are responsible for making chips that power AI workloads were down by double digit percentages in the wake of breakneck inflation and rising interest rates.
Fast forward to 2024 and the rise in valuations seems to have no end in sight. One bank that’s quite optimistic about artificial intelligence is Goldman. Goldman’s analyst teams are among the best in the world, and they spend countless hours analyzing stocks and industries for the right set of picks that could disrupt the industry.
On this front, Goldman came out with a note recently that outlined a new beginning for the computer hardware industry. According to the bank, the introduction of AI has necessitated a global shift to new hardware that can support the technology. In its note, the bank’s analysts shared:
During the pandemic, the tech hardware industry peaked as the majority of work-from-home employees purchased equipment. The space currently has fully unwind this cycle and we notice stocks like HPQ trading at 9x their 2025 earnings estimates.
Most PCs purchased during the pandemic are expected to be replaced soon. We expect discernable new features of AI, enhanced security, and stronger computational power in upcoming PC and mobile device models, incentivizing the US consumer to spend more on newer equipment than historically, creating an unusually stronger cycle.
Goldman also created a basket of stocks where the highest weighted stock has an 8% weight and there are 20 stocks in the basket. According to Goldman analyst Faris Mourad:
The basket is composed of technology hardware stocks that may benefit from PC and mobile device renovations that could include AI features. The basket can trade up to $250m in one day with no name exceeding 10% of ADV.
Considering this optimism, we decided to take a look at the top Goldman’s top 15 hardware stock picks.
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Our Methodology
To make our list of the top Goldman Sachs hardware stocks, we used the top holdings of the bank’s PC & Mobile Device AI Upgrades basket (GSXUPCAI).
For these hardware stocks, we also mentioned hedge fund investors. The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
15. CDW Corporation (NASDAQ:CDW)
Number of Hedge Fund Shareholders In Q1 2024: 31
CDW Corporation (NASDAQ:CDW) sells hardware products such as notebooks, personal computers, and data center products. It marks a strong start to our list of best hardware stocks as the average of ten one year analyst ratings is Strong Buy and the average share price target is $251.66. Citi cut CDW Corporation (NASDAQ:CDW)’s share price target to $260 from $295 in May 2024 and kept the rating at Buy. While CDW Corporation (NASDAQ:CDW)’s recent earnings performance was disappointing, Citi noted that the firm has strengths on the financial and market fronts. On the latter, CDW Corporation (NASDAQ:CDW)’s cash flows and stable debt management impressed the firm, and on the latter, it shared that a well diversified portfolio can capture the AI market.
CDW Corporation (NASDAQ:CDW)’s forward P/E of 22.08 is nearly in line with the market’s 21. This implies that investors expect it to grow in line with benchmark indexes. Wedgewood Partners mentioned the firm in its Q1 2024 investor letter where it shared:
CDW was a positive relative performer. The Company generated nearly flat gross profit growth in 2023 off difficult 2022 (+31%) comparisons (partially from M&A). The Company has done a remarkable job helping its small and medium-sized customers shift from hardware-centric IT layouts to hybrid and software-based implementations. CDW’s core customer typically has constraints in both IT department staffing and related resources, making it difficult for large enterprise-focused IT vendors to reach those customers. As a result, there are plenty of proven technologies that have been adopted by larger businesses, often long ago, that will eventually find their way into small and medium-sized businesses with the help of CDW. CDW is agnostic to the consumption models or form factors of technologies, which is why the Company has been able to maintain superior returns over many different technology cycles and innovation trends. We think helping small and medium-sized businesses setup and run their IT departments is more important than any specific technology that happens to enable those departments and should help the Company continue to grow and take share of IT budgets over time.
14. Seagate Technology Holdings plc (NASDAQ:STX)
Number of Hedge Fund Shareholders In Q1 2024: 52
Seagate Technology Holdings plc (NASDAQ:STX) is storage company that makes and sells products such as hard disk and solid state storage drives. In an analyst note that came out in May 2024, Mizuho raised the firm’s share price target to $110 from $100 and kept a Buy rating on the shares. At the heart of the increased price target was Mizuho’s belief that Seagate Technology Holdings plc (NASDAQ:STX) can continue to benefit from the growth in global cloud and enterprise computing platforms.
Seagate Technology Holdings plc (NASDAQ:STX) currently trades at a forward price to earnings ratio of 19.7. This is nearly in line with the S&P’s forward P/E of 21, and it indicates that the market expects Seagate Technology Holdings plc (NASDAQ:STX) to perform in line with the broader index. Management however is more optimistic, as during a recent earnings call, it pointed to the potential of capturing the hardware market on the edge computing segment of the data center market. According to CEO Dave Mosley:
Analysts place this among the fastest-growing sectors for VIA applications worldwide. Within China, the pace and magnitude of demand improvement in VIA and other HDD markets will be shaped by economic recovery in the region. We continue to monitor the government’s efforts to spur economic growth, including stimulus plans aimed at digital transformation and infrastructure spend. Recent economic indicators show signs of progress. However, it will take time for the benefits of these programs to take hold. Overall, we believe these constructive market trends support steady revenue growth throughout the calendar year. Our ability to deliver that growth is enhanced by our build-to-order initiative that is now in place with the majority of large mass capacity customers.
13. Skyworks Solutions, Inc. (NASDAQ:SWKS)
Number of Hedge Fund Shareholders In Q1 2024: 31
Skyworks Solutions, Inc. (NASDAQ:SWKS) is a semiconductor company that designs and sells products such as power management and signals processing systems. The firm is a key supplier to Apple for the iPhone’s hardware, and this also led to Rosenblatt reducing Skyworks Solutions, Inc. (NASDAQ:SWKS)’s share price target to $120 from $130 in May 2024. The firm shared that the hardware company faces a slowdown in the smartphone market, and the loss of a key component order from Apple should add to the woes. However, Rosenblatt reiterated a Buy rating on the shares due to Skyworks Solutions, Inc. (NASDAQ:SWKS)’s long term potential.
Unlike semiconductor stocks that are AI favorites, Skyworks Solutions, Inc. (NASDAQ:SWKS)’s forward price to earnings ratio of 15.80 is lower than the market’s 21. This indicates that investors expect it to grow slowly when compared to the broader index. Its management is also aware of the slow nature of the market right now, but it also commented on the early stage of the cycle that Goldman mentioned in its report. In a recent earnings call, management shared:
We are in the early innings of a multiyear upgrade cycle, with high end access points now being offered. Over the coming quarters, we anticipate retailers to roll out mainstream models, followed by carriers and MSOs for their gateways and router products. The wireless infrastructure and traditional data center markets remained soft. We continue to undership natural demand as we allow the distribution channel and customers to consume excess inventory. Despite near-term headwinds, we remain bullish on AI workloads, driving upgrades to Ethernet switches and optical modules, a positive long-term driver for our advanced precision timing solutions. Lastly, automotive and industrial markets remain under pressure as they continue to undergo a steep inventory correction.