On Wednesday, there was a noticeable decline in the stock prices of Dell and HP. This decline was triggered by the release of forecasts that raised concerns about the potential recovery of the market for artificial intelligence-enabled personal computers.
Dell's stock experienced a significant drop of 11%, resulting in a loss of approximately $11 billion from its market valuation of $99.50 billion. This decline was attributed to the company's projection of quarterly revenue that fell below market expectations.
In the meantime, HP's stock experienced a decline of approximately 5%, resulting in a reduction of nearly $2 billion in its market capitalization. On Tuesday, the company's market capitalization was recorded at $37.68 billion. This development can be attributed to the company's quarterly profit forecast falling short of analysts' expectations.
Following a surge in sales during the pandemic, the demand for traditional PCs has witnessed a decline. Additionally, AI-driven computers have yet to gain widespread adoption, despite garnering some interest from corporate and educational sectors.
Morningstar analyst Eric Compton noted, "We have consistently indicated that we did not foresee artificial intelligence personal computers causing any fundamental shift in PC demand, which may be the source of the market's disappointment."
The anticipated upgrade cycle for computers, prompted by Microsoft's cessation of support for Windows 10 and the shift to Windows 11, has progressed more slowly than expected. HP CEO Enrique Lores commented, "Given that the Windows 11 transition has not accelerated as quickly as previous industry shifts, we anticipate that the effects of the upgrade will be more noticeable in 2025."
On a positive note for Dell, its AI server division has shown significant growth, with revenue in the servers and networking segment soaring by 58% due to increased demand from cloud companies eager to leverage AI technologies. At least three analysts have raised their price targets for both Dell and HP, while one brokerage has lowered the price targets for each stock.
However, some analysts cautioned that a delayed rollout of Nvidia's next-generation AI chip could negatively impact Dell's sales and profit margins. A design issue with the Blackwell chips, coupled with limited manufacturing capacity for advanced semiconductors at TSMC, has hindered Nvidia's ability to increase production of its highly anticipated processors.
Barclays analysts observed that the transition to Blackwell may impact Dell's revenue timeline. They raised concerns that the implementation of these Blackwell systems could potentially reduce the gross margin percentage. Comparatively, HP shares are currently valued at 10.84 times analysts' profit projections, while Dell's shares are at 15.51 times and Microsoft's at 30.94 times.