We recently published a list of 10 Trending AI Stocks in October. Since HP Inc (NYSE:HPQ) ranks 9th on the list, it deserves a deeper look.
Tom Lee, Fundstrat co-founder, while talking to CNBC in a latest program, explained his bullish case for the market and why he believes the S&P 500 is headed to close the year “well beyond” 5,700.
“Bull markets are supported by a strong fundamentals and this is a case where not only has the economy survivie extremely high interest rates but the Fed is beginning to cut rates, and an economy that has been sort of languishing has been China. Now we have stimulus and what looks like some bazooka policies that are supporting that region, and we have a lot of cash on the sidelines. I think this is a formula for stocks to do pretty well the next three to 12 months, and that’s why we think that we would be well beyond 5700 before year-end.”
Lee said that he’s inclined to buy “risks outright” as he believes more upward momentum would come for stocks after the election.
“Small caps still have good fundamentals, earnings growth is accelerating, the media P/E is eleven times which is almost seven turns lower than the S&P so I think there is still case to be made that small-cap are starting a multi-year gain.”
For this article we picked 10 AI stocks that are making big moves on the back of latest news. With each company we have mentioned the 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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HP Inc (NYSE:HPQ)
Number of Hedge Fund Investors: 41
HP Inc (NYSE:HPQ) made news as Citi downgraded the stock, reflecting a “more cautious” outlook for the PC sector. Analyst Asiya Merchant noted in a client memo, “Recent checks in the PC ecosystem suggest the near-term PC refresh opportunity remains protracted, given macro uncertainty and Windows 10 EOL security patch extensions, while AI impacts are likely further out into 2026/2027.” She downgraded her rating on HP Inc (NYSE:HPQ) to Neutral from Buy but maintained her price target at $37. Merchant also highlighted ongoing challenges in HP’s printer segment, citing “aggressive” pricing and weakness in China as persistent headwinds.
What spooked investors in the latest quarterly results of the company was the lackluster growth in PC revenue (about 4.9%) and a decline in the printing segment. The printing segment has never been the center of attention of HP Inc (NYSE:HPQ) investors. However, the latest data shows the growth in AI PCs everyone was banking on remains far into the future.
In the last couple of quarters, the company’s inventory levels have been climbing, reaching $7.5 billion as of the end of the last quarter.
HP Inc (NYSE:HPQ) Days of Inventory Outstanding (DIO) jumped to over 67 days, significantly above its five-year average of 55.96 days, nearing the highest level in recent years. With sales slowing, this spike in DIO suggests HP Inc (NYSE:HPQ) could face pressure on its stock price and uncertain returns in the next 1-2 years.
Amid all of this, the stock would be a risky bet for those who are just basing their hopes on the AI PC growth catalyst.
Greenlight Capital stated the following regarding HP Inc. (NYSE:HPQ) in its Q2 2024 investor letter:
“In addition to gold, we had four material winners in our long portfolio this quarter. HP Inc. (NYSE:HPQ) jumped from $30.22 to $35.02. After seven quarters of declines, PC sales turned marginally positive during the quarter. The industry appears to be in the early stages of an upcycle, perhaps to be enhanced by recently launched AI-enabled PCs that are expected to ramp up over the next several quarters.”
Overall, HP Inc (NYSE:HPQ) ranks 9th on Insider Monkey’s list titled 10 Trending AI Stocks in October. While we acknowledge the potential of HP Inc (NYSE:HPQ), our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than HPQ but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
