The artificial intelligence (AI) market is in high demand in the business arena, but AI is yet to boost the consumer PC market. According to Statista, global PC shipments fell from 341 million in 2021 to 241 million in 2023.
However, the conditions for a PC recovery are in sight. Microsoft will end support for Windows 10 next year, which is expected to drive the adoption of next-generation PCs optimized for AI applications. Gartner expects AI PCs to make up 43% of PC shipments in 2025, up from 17% in 2024, implying a strong upgrade cycle.
Here are two stocks that can help you take advantage of this opportunity.
1. Micron technology
Micron technology‘S (NASDAQ:MU) leadership in memory and solid-state drives (SSDs) creates robust growth opportunities in the data center market. The company just ended its fiscal year with record data center revenue, driven by demand from both traditional and AI servers. The stock’s recent pullback is a great buying opportunity, as more powerful, AI-optimized PCs will require more memory and storage capacity, which should be another catalyst for Micron’s business.
Micron expects the end of support for Windows 10 and the launch of Windows 12 next year to drive strong sales. For new AI applications, people with older PCs may need an upgrade. For example, new AI PCs will require about 32 gigabytes (GB) of dynamic random-access memory (DRAM) to run smoothly, which is higher than the average of 12 GB for all PCs last year. This should drive demand for Micron’s latest SSD and memory products that can handle resource-intensive software.
Even with weak PC demand this year, Micron’s data center business contributed to strong growth last quarter, with revenue up 93% year over year as the company begins to emerge from a down cycle. AI is the catalyst driving growth for Micron, and a recovery in PC shipments next year could see the company firing on all cylinders by 2025.
Micron’s prospects call for an acceleration of growth in the second half of calendar 2025. Wall Street analysts expect the company’s profits to rise 42%. If Micron’s shares trade at their historical average price-to-earnings (P/E) ratio of 16, the stock price could reach $204 next year, implying an upside of 94%.
2. Dell Technologies
Dell Technologies (NYSE: DELL) Shares have been climbing higher over the past year, but recently traded 32% below their highs. It’s a tale of two companies: AI-driven demand in Dell’s server business overshadows weak performance in the PC sector; half of Dell’s business is dependent on the PC market, where client solutions segment revenue fell 4% year over year in the second quarter.
Overall, Dell is a solid company that is performing well. Demand for Dell’s AI servers is currently off the charts. Customers love Dell because it offers customized products and excellent customer service. Infrastructure product revenue rose 38% year-over-year in the second quarter, driving an impressive 86% increase in the company’s profits.
A recovery in PCs could get the company rolling by this time next year, and that could mean a significantly higher share price. Dell expects its client solutions business to improve with the upcoming Windows PC refresh cycle. Management expects the PC business to improve in the fourth quarter of 2024, but expects AI to create growth opportunities for the PC market in the long term.
Dell estimates its addressable market in AI hardware and services at $174 billion and growing at 22% per year, so investors can justify buying the stock on that opportunity alone. The shares trade at a conservative price-to-earnings ratio of 16. Analysts expect earnings to rise 19% in 2025. If investors decide to value the company at a higher price-to-earnings ratio, which is possible given the long-term tailwinds in AI, Dell stock could deliver a return greater than next year’s earnings increase.
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*Stock Advisor returns October 14, 2024
John Ballard has no position in any of the stocks mentioned. The Motley Fool holds positions in and recommends Microsoft. The Motley Fool recommends Gartner and recommends the following options: long calls in January 2026 for $395 at Microsoft and short calls in January 2026 for $405 at Microsoft. The Motley Fool has a disclosure policy.
AI Is About to Change the PC Market: 2 Stocks to Buy Now was originally published by The Motley Fool
