Citi Research analyst Asiya Merchant has recently upgraded HP Inc. stock (HPQ) to a buy rating, indicating a more positive outlook for the company in the post-pandemic era. Merchant has also raised the target price to $33 from $31, citing encouraging signs of an improved demand landscape and positive commentary from the supply chain.
Merchant highlighted that HP is making progress in terms of market-share trends, particularly in higher-growth areas such as commercial and gaming PCs. With a focus on these segments and an expected healthier industry backdrop next fiscal year, HP is poised to benefit from the Windows 10 expiration.
Furthermore, Merchant expressed confidence in HP’s earnings potential. The company has been actively reducing costs, which could serve as a tailwind to margins.
There is also a promising long-term opportunity for HP in the field of artificial intelligence (AI), particularly as Microsoft Corp. continues to drive AI offerings like Copilot. Merchant predicts that as users become more accustomed to AI on their local desktops and laptops, there will be a growing demand for more powerful AI capabilities at the client level. This could lead to major upgrades in chip technology, including advanced CPUs, GPUs, and NPUs (neural processing units), resulting in more efficient processing of large datasets with reduced latency and cost compared to cloud-based processing.
Although the potential economic impact of the AI trend on the PC ecosystem is favorable, Merchant has yet to incorporate this catalyst into her estimates. She is awaiting further evidence of demand impacts before revising her projections.
In premarket trading on Monday, HP shares showed a 1.5% increase. However, over the past 12 months, the stock has experienced a decline of approximately 10%.
