Hedge fund manager David Einhorn believes artificial intelligence (AI) can help computing hardware provider HP (NYSE:HPQ) out of its sideways consolidation. Putting a stake into the thesis, the market expert believes that the AI narrative has yet to translate to a higher price for HPQ stock.
In a letter, Einhorn wrote that HP “stands to benefit from AI, which we believe is not reflected in the current stock price.” Notably, the hedge fund manager emphasized a baseline case for HPQ stock. “We believe that we are at a minimum, on the cusp of a normal PC refresh cycle, which should drive earnings above estimates.”
However, the more enticing storyline centers on a possibly robust industry-wide improvement. “The more exciting opportunity is through a possible AI-driven PC adoption cycle, fueling higher unit prices and a more robust PC market recovery,” Einhorn remarked.
Interestingly, the investor acknowledged that experts are divided about the AI-integrated opportunity. Still, Einhorn’s hedge fund Greenlight came to the main conclusion that the potential for an upswing hasn’t been reflected in HPQ stock.
Bullishness in HPQ Stock Is More Than Just Words
Beyond the bullish thesis — which is largely a contrarian take — the matter that has driven HPQ stock higher is that Greenlight is putting actual weight behind it. In the aforementioned letter, the content revealed that Greenlight established a position in HPQ stock in the first quarter. The average price came out to $30.76 a share.
As of this writing, HPQ stock trades hands at $28.21, about 2% higher from Tuesday’s close.
HP CEO Enrique Lores stated to Yahoo Finance at the World Economic Forum that a new category of PCs that utilize specialized AI chips onboard would reach consumers later in 2024. “It’s probably one of the biggest changes in the PC industry since the PC was invented more than 20 years ago,” Lores said at the time.
Still, the other side of the argument must be acknowledged. According to Hal Daumé III, a professor of computer science at the University of Maryland, investors should be wary of the AI hype:
“I am not totally convinced that the integration of specialized AI hardware on platforms is going to be such a huge shift. I don’t think it’s going to change what we can do, but I think it might change who can do it because the hardware will be more commodified.”
What’s not deniable is that HPQ stock carries a forward dividend yield of 3.88%. That’s much higher than the technology sector’s average yield of 1.37%. Interestingly, Greenlight estimates that HP has the capacity to buy back 25% to 30% of its shares over the next three years.
Why It Matters
Currently, the sentiment for HPQ stock is largely divided with a consensus hold rating. This assessment breaks down as four buys, four holds and two sells. The average price target is $31, implying about 10% upside potential. Moreover, the most optimistic target calls for $40, suggesting roughly 42% growth.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
