We recently published a list of Top 10 Trending AI Stocks Amid Latest News and Analyst Ratings. Since HP Inc (NYSE:HPQ) ranks 10th on the list, it deserves a deeper look.
The reality is finally catching up to the AI hype as investors await to see ROI on huge spending on AI chips and infrastructure. Dan Niles, Niles Investment Management founder and portfolio manager, during an interview with CNBC last month, called the decline in Mag. 7 stocks after Q2 earnings representative of a “fundamental shift” in the industry.
“I know it’s popular to talk about AI because these stocks are driving the market, but at a certain point, you want to get a return on all of this money you are investing. And if your forward revenue estimate is going lower not higher but your CapEx is going up, at some point those two things are going to collide.”
Niles said that major tech companies went through a “digestion” period after seeing huge returns during the COVID-19 pandemic days, and he expects the same to happen as we move into the next year.
The analyst said that on an equal-weighted basis, the broader market is up when compared with Mag. 7 stocks. He recommended investors to buy the stocks that would benefit from rate cuts. These include consumer staples, utilities, telecom services, etc.
Niles said the other 493 companies could drive the market to new “all-time record highs.”
For this article, we picked 10 AI trending stocks that are moving after latest analyst ratings and earnings. 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) shares were under pressure amid the latest quarterly results in which the company issued a guidance cut. Wall Street analysts believe it would take time for HP Inc (NYSE:HPQ) to see a revival in PC demand amid the new AI wave.
Citi reaffirmed its Buy rating on the stock and a $37 price target saying AI PCs would revive growth in the coming fiscal years.
“We expect shares to trade modestly lower given the company lowered their FY24 EPS guide down modestly,” said Citi analyst Asiya Merchant.
What spooked investors in the latest quarterly results 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 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 10th on Insider Monkey’s list titled Top 10 Trending AI Stocks Amid Latest News and Analyst Ratings. 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.