Poor performance forecasts from major personal computer manufacturers Dell and HP have sparked significant selloffs of their shares, throwing the future of the PC market recovery, particularly one fueled by artificial intelligence, under scrutiny.
On Wednesday, Dell’s stock saw a substantial drop of 11%, leading to losses of approximately $11 billion from its market valuation, which stood at $99.50 billion. This plummet came after the company issued projections for quarterly revenue below what analysts had expected.
Meanwhile, HP's shares also dropped about 5%, shrinking its market capitalization by nearly $2 billion, bringing it down from $37.68 billion prior to the announcement. The disappointing figures were attributed to HP's quarterly profit forecast, which failed to meet analyst expectations.
The struggles for both companies come as the demand for traditional PCs declines. Following the post-pandemic surge, there's been a noticeable weakening of consumer interest, particularly as AI-enabled desktops and laptops haven’t yet gained wide traction beyond niche markets like corporate and educational sectors.
“We have long warned against the notion of AI personal computers fundamentally altering PC demand,” Eric Compton, an analyst with Morningstar, noted. He explained the concerns stemmed from the market's unrealistic expectations for AI technology driving major sales increases prematurely.
Adding to the downturn is the gradual pace of the expected computer upgrade as Microsoft prepares to cease support for Windows 10, transitioning to Windows 11. Dell’s CEO, Enrique Lores stated, “The transition has not been as swift as anticipated, and the impact of the upgrade will become even more pronounced by 2025.” This slower rollout is raising eyebrows among investors and causing uncertainty around sales forecasts.
While Dell reported gains from its AI-driven business, particularly from its Infrastructure Solutions Group (ISG), where revenue soared by 34% to $11.4 billion, the overall picture is complex. Their Client Solutions Group (CSG), which includes consumer products, experienced revenue declines, dropping by 1% year-over-year, indicating serious challenges.
Despite these struggles, there are some glimmers of hope. For example, revenue from AI servers rose sharply by 58%, showcasing strong demand from cloud service providers racing to integrate AI functionalities.
Yet, even as analysts maintain some optimism, caution runs rampant across the board. An expected slow rollout of Nvidia’s next-generation AI chip, the Blackwell, introduces uncertainty for Dell, with concerns it may negatively influence sales and profit margins. Barclays analysts expressed worrying sentiments over potential gross margin pressures due to design flaws at Nvidia and limits on semiconductor production at TSMC, which manufactures these advanced chips.
Corporate analysts expressed varied outlooks with analysts modifying their price targets accordingly. Some believe the recent downward trend for Dell and HP stocks might be exaggerated. Others remain skeptical about the market’s recovery potential, which seems increasingly tenuous as consumer habits shift faster than the technology can adapt.
Overall, the marketplace remains on edge as both companies set their hopes on the tide turning with new technologies and upgrades by 2025, combating fierce competition, rapidly changing consumer preferences, and the pressure of meeting rising expectations.
HP's stock trades at 10.84 times profit estimates, compared to 15.51 for Dell and 30.94 for tech giant Microsoft, reflecting the market's caution. Analysts will continue to track how Dell and HP navigate their respective challenges as the future of the personal computing market hangs precariously.
