In this article, we will take a detailed look at the 8 Best AI PC Stocks to Buy Now.
When the AI revolution began with the launch of ChatGPT, no one would have thought that down the road it would bring a huge growth catalyst for the PC industry, notorious for its cyclical nature and unpredictability. Fast forward to today, everyone is talking about PCs equipped with AI-focused equipment capable to process generative AI workloads. But in just a matter of few months why did the market feel the need for AI PCs? It all boils down to costs. GPT-4 costs $0.03 per 1,000 tokens for prompts and $0.06 for completion according to Microsoft’s estimates. Consider millions of users prompting LLMs from their phones and computers. The costs of scaling such systems are not feasible. That’s why the market thought allowing users to process AI-intensive workloads natively instead of using the Cloud is the future. And that caused the AI PC boom. Tech market analyst firm Canalys says AI PC shipments are expected to soar to 170 million in 2027, from 25 million in 2022. That would be a 60% share of the total PC market. The firm also expects AI PC shipments to double from 2023 to 2024 and double gain from 2024 to 2025.
Canalys also expects vendors to ship 205 million AI-capable PCs in 2028, representing a CAGR of 44% from 2024 through 2028.
For this article we scanned Insider Monkey’s database of 919 hedge funds and picked 8 AI PC stocks with the highest number of hedge fund investors. Why are we interested in the stocks that hedge funds pile into? 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).
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8. Arm Holdings Plc (NASDAQ:ARM)
Number of Hedge Fund Investors: 29
Goldman Sachs said in a report last month that the biggest beneficiaries of the AI PC wave include Arm Holdings Plc (NASDAQ:ARM), in addition to some other companies.
UK-based semiconductor company Arm Holdings Plc (NASDAQ:ARM) is positioned well to benefit from the rise of AI PCs. Arm CEO Rene Haas said at the COMPUTEX 2024 event in Taiwan that the company plans to ready 100 billion Arm devices for AI across the globe. Arm’s moat lies in the fact that major companies are using its architecture to develop their own chips to cut reliance on chip makers like Nvidia and AMD. For example, Alphabet Inc. (GOOG) earlier this year said ARM-based Axion CPUs will be available for Google Cloud customers later this year. Media reports also say Microsoft was planning to launch ARM-powered Azure Cobalt CPU for Azure customers. Amazon’s CPU Graviton4 SoC for AWS clients is also ARM-based. On June 12, Reuters reported that MediaTek is developing an Arm-based personal computer chip that will run Microsoft’s Windows operating system.
However, since Arm Holdings Plc (NASDAQ:ARM) is still linked to the processors market that depends on the PC and smartphone industry (unlike NVDA, AMD which are focusing on GPUs), the skeptics have voiced concerns over the sustainability of its growth. Arm Holdings Plc (NASDAQ:ARM) has a Price/Sales ratio of 40, much higher than peers and even more than high-growth software players like Palantir. Its Price/Cash Flow ratio is 96, which represents a rather unrealistic growth expectation. The stock’s Forward P/E ratio of 103.09 is also much higher than the industry average of 30 and dwarfs that of NVDA and AMD.
As of the end of the first quarter of 2024, 29 hedge funds tracked by Insider Monkey reported owning stakes in Arm Holdings Plc (NASDAQ:ARM).
7. HP Inc (NYSE:HPQ)
Number of Hedge Fund Investors: 46
Microsoft has named HP Inc (NYSE:HPQ) as one of its notable partners in the production of AI PCs. HP Inc (NYSE:HPQ) is also making waves in the AI PC market with HP Inc’s (NYSE:HPQ) OmniBook X AI PC and HP Inc (NYSE:HPQ) EliteBook Ultra G1q AI PCs. HP Inc (NYSE:HPQ) recently posted strong Q2 results, which also indicated HP Inc (NYSE:HPQ) has started to see a new AI-powered PC refresh cycle. Morgan Stanley analyst Erik Woodring said in a note that HP Inc’s (NYSE:HPQ) PC business saw growth for the first time since April 22. The analyst also maintained his Overweight rating and increased the stock’s price target to $37 from $36.
HP Inc (NYSE:HPQ) shares have gained about 18% so far this year. HP Inc (NYSE:HPQ) is also a dividend-paying company, with a 3% dividend yield as of June 4 market close. HP Inc (NYSE:HPQ) shares are trading at 9.53X HP Inc’s (NYSE:HPQ) 2025 estimated earnings per share, which makes the stock undervalued given the industry’s forward P/E median sits at 22. According to data from Yahoo Finance, HP Inc (NYSE:HPQ) earnings are expected to grow at 6.70% next year and at 5.10% for the following five years on a per-annum basis.
As of the end of the first quarter of 2024, 46 hedge funds tracked by Insider Monkey reported owning stakes in HP Inc (NYSE:HPQ). Cliff Asness’s AQR Capital Management owns a $257 million stake in HP Inc (NYSE:HPQ).
Greenlight Capital stated the following regarding HP Inc. (NYSE:HPQ) in its first quarter 2024 investor letter:
“The title of our Sohn presentation was “Solve AI,” which was a play on Solvay’s corporate name. Nonetheless, we established another new long position that actually stands to benefit from AI, which we believe is not reflected in the current stock price. HP Inc. (NYSE:HPQ) sells computers, printers and adjacent products and supplies. We established an initial position at an average price of $30.76 per share, which is about 9x current year earnings estimates. Recent results reflect a two-and-a-half-year cyclical downturn in demand for computers, which followed a mini-boom driven by COVID and related demand for equipment to work-from-home. We believe that we are, at a minimum, on the cusp of a normal PC refresh cycle, which should drive earnings above estimates. HPQ has committed to return 100% of free cash flow to shareholders through buybacks and dividends. The shares have a 3.6% dividend yield and we estimate HPQ has the capacity to buy back 25-30% of the outstanding shares over the next three years.
The more exciting opportunity is through a possible AI-driven PC adoption cycle, fueling higher unit prices and a more robust PC market recovery. Currently, investor attention around AI is focused on cloud service providers and related equipment. This summer, Intel plans to release a neural processing unit (NPU), which will allow AI functionality on local devices. Microsoft has teased AI features that are coming in the next Windows update later this year, which may require a computer with an NPU to fully function. One such application is believed to be ‘AI Explorer,’ which is described as an “advanced Copilot” with a built-in history/timeline feature that turns everything you do on your computer into a searchable repository using natural language. It is said to work across any application and allows users to search for previously opened conversations, documents, web pages and images. While we have spoken with experts that are divided between being enthusiastic and skeptical of an AI PC cycle, we don’t believe any of the optimism is currently reflected in the share price. HPQ ended the quarter at $30.22 per share.”
6. QUALCOMM Inc (NASDAQ:QCOM)
Number of Hedge Fund Investors: 78
QUALCOMM Inc (NASDAQ:QCOM) was seen as a laggard in the AI arms race but all of a sudden the stock has a new growth catalyst: AI PCs. Microsoft has announced that its Surface Laptop and Surface Pro will be powered by QUALCOMM Inc (NASDAQ:QCOM) chips. These devices can run several AI tasks without the internet. QUALCOMM Inc (NASDAQ:QCOM) is a key partner of Microsoft to deliver Copilot+ PCs.
As of the end of the first quarter of 2024, 78 hedge funds out of the 919 funds tracked by Insider Monkey reported owning stakes in QUALCOMM Inc (NASDAQ:QCOM).
In addition to AI PCs, AI smartphones is another emerging growth catalyst for QUALCOMM Inc (NASDAQ:QCOM). The company’s Snapdragon 8 Gen 3 Mobile Platform can power smartphones to process up to 10 billion parameters of generative AI models, effectively making them intelligent personal assistants.
Wall Street expects Qualcomm’s revenue to grow 10% in 2025 and earnings to rise by 13.10% in the year. Despite these growth catalysts, QUALCOMM Inc (NASDAQ:QCOM) is trading at a forward P/E of 18.42, lower than the industry median of 23.73.
Madison Sustainable Equity Fund stated the following regarding QUALCOMM Incorporated (NASDAQ:QCOM) in its fourth quarter 2023 investor letter:
“QUALCOMM Incorporated (NASDAQ:QCOM) also reported a solid fourth fiscal quarter with better than expected results. The company guided the first quarter ahead of expectations despite headwinds from Samsung as the inventory headwinds dissipate. Qualcomm remains well positioned in the mobile handset market and should benefit as Artificial Intelligence moves to edge devices which could drive an upgrade cycle.”
5. Dell Technologies Inc. (NYSE:DELL)
Number of Hedge Fund Investors: 82
Dell Technologies Inc. (NYSE:DELL) shares tumbled last month amid lackluster Q1 results but Wall Street believes AI server and PC growth is just getting started and Dell Technologies Inc. (NYSE:DELL) is positioned well to benefit from this cycle. Bank of America analyst Wamsi Mohan said in a note after Q1 earnings that he reiterated his Buy rating for Dell Technologies Inc. (NYSE:DELL). The analyst believes we are still in the early stages of AI adoption and expects momentum around AI servers. Mohan set a $180 price target for Dell Technologies Inc. (NYSE:DELL), which shows a 33% upside potential from the current levels.
Last month, Dell Technologies Inc. (NYSE:DELL) announced expansion of its AI PC portfolio, with new Copilot+ PCs powered by Snapdragon® X Elite and Snapdragon® X Plus processors. Microsoft has also named Dell Technologies Inc. (NYSE:DELL) as its manufacturing partner for Copilot PCs.
Dell Technologies Inc.’s (NYSE:DELL) bulls believe the market’s reaction to Dell Technologies Inc.’s (NYSE:DELL) Q1 report was irrational. Dell Technologies Inc.’s (NYSE:DELL) revenue jumped about 6.2% on a YoY in the quarter to $22.2 billion. Wall Street expects Dell Technologies Inc.’s (NYSE:DELL) EPS this year to come in at $7.71, and at $9.1 next fiscal year (2026). Based on this 2026 estimate, Dell Technologies Inc. (NYSE:DELL) is trading at around 15x its future earnings, which is lower than the industry median P/E of 23.08. According to Yahoo Finance, Wall Street has a $155.14 price target on Dell Technologies Inc. (NYSE:DELL) on average, which presents an upside potential of 14%. Based on high growth expectations from both AI PCs and servers, Dell Technologies Inc. (NYSE:DELL) is an undervalued stock to buy right now, according to analysts.