Jim Cramer sees the greatest PC refresh cycle ever coming and names 3 stocks that can benefit
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The rebound emerging in the personal computer market is getting a major boost thanks to artificial intelligence and Microsoft ‘s biggest keyboard change in decades. Microsoft announced Thursday that upcoming Windows PCs will soon have a designated key for its AI virtual assistant Copilot . This is one of the most prominent updates to the Windows keyboard in almost 30 years since the tech behemoth first added the Windows key to directly access the Start menu. Jim Cramer said these AI-integrated devices, set to be released later this month, will usher in “the greatest refresh cycle in history” after several lagging quarters for the PC market. The new enhancement will launch the Copilot chatbot at the press of a button. “If you’re going to put a button for Copilot on your PC, the reverberations for that are basically throw out your PC and get a new PC. We’ve been waiting for a refresh cycle,” Jim said on CNBC on Thursday. There have also been other signs of a strong recovery for the PC market. New research from Wall Street analysts forecasts a 2024 rebound for the industry. Goldman Sachs, for example, estimated on Tuesday that PC shipments will return to growth this year for the first time in three years. The analysts are “selectively positive” on PC-exposed stocks for 2024, citing catalysts like the rollout of artificial intelligence-enabled devices, the industry’s refresh cycle, and the end date for Windows 10 support next year. For context, the PC market started to weaken in 2021 after demand surged in the early days of Covid. During the height of the pandemic, companies scrambled to buy new computers and other technology needed for employees to work from home. People stuck in their houses also bought new computers and devices for their personal use as they sought different forms of entertainment. But as Covid restrictions lifted and more people went back to the office, PC sales started to wane. “Declining PC installed base (reversal of work/learn from home) & the earlier pull-forward of upgrades, as well as excess channel inventory from the over shipment by PC suppliers” were at play, Goldman analysts explained. There have been two straight years of year-over-year double-digit percentage declines for PC shipment volumes, according to recent data from the International Data Corporation , released in December. There are signs that the industry has moved past the trough. While PC shipments fell again, down 7.2% year over year to 68.5 million units during the third quarter of 2023, the figure exceeded analysts’ expectations. Considering the tailwinds ahead for PCs, Big Tech Club names like Microsoft, along with Apple and Nvidia , are poised to benefit. MSFT YTD mountain Microsoft (MSFT) year-to-date performance Microsoft: The company’s addition to the Windows keyboard could incentivize users to upgrade their PCs, causing an increase in revenue for its personal-computing business. This segment accounts for roughly 10% of its total revenue, any boost to this figure — however incremental — would be welcomed news. The company’s PC business returned to revenue growth last quarter as well, rising 2.5% year over year. This beat analysts’ estimates of a 3.5% annual decline. We expect this trend to continue even more with the new Copilot button. Additionally, the presence of a physical key could increase the number of sign-ups for the monthly Copilot subscription program. Think of it as a constant, always-there advertisement for the service. Microsoft management seems upbeat on the Windows Copilot key and AI broadly. The software giant capitalized on its partnership with OpenAI, the startup behind ChatGPT. Microsoft’s head of Windows and Surface, Yusuf Mehdi, went as far as to describe 2024 as the “year of the AI PC,” in a new blog post . To be sure, it’s unclear what specific functions AI PCs will offer, but firms are hoping they will reinvigorate sales for devices. AAPL YTD mountain Apple (AAPL) year-to-date performance Apple: Goldman analysts said the iPhone maker’s stock will benefit from a “recovery in industry PC demand, as well as a track record of share gains” in 2024 too. Candidly, personal computing plays a small role in Apple’s overall bottom line — accounting for about 7.7% of total net sales in fiscal 2023 (a bit over 10% in fiscal 2022). Still, we’re upbeat on any increase in demand for the company’s products. More Mac users will also boost Apple’s Services revenue — a key growth driver for the mega-cap name. Additionally, Apple tends to have loyal customers because of its product quality and highly-integrated closed ecosystem. NVDA YTD mountain Nvidia (NVDA) year-to-date performance Nvidia: A rebound in the PC market may contribute to Nvidia’s overall growth in 2024. The recovery could help boost revenue for the leading chipmaker’s Gaming and Professional Visualization segments. Both saw a lot of success last quarter. Gaming revenue increased 81% year over year, whereas the Professional Visualization segment jumped 108%, according to its latest quarterly results , out in November. Although the majority of the Club holding’s sales are derived from its Data Center business — around 80% – gaming is the second-most important segment in terms of sales and earnings. Gaming accounts for roughly 16% of sales in the quarter ending Oct. 29, 2023. Nvidia had a stellar fiscal year 2023 overall, both in share gains and its financial performance. The company tripled its year-over-year revenue and its stock surged over 238% in 2023. While further gains in 2024 will rely on continued momentum in the Data Center business, any upside in gaming can certainly prove the cherry on top to help drive the stock to new highs. Advanced Micro Devices , a former Club name and now in the Bullpen to watch, produces CPUs and GPUs found in PCs. It, too, could be a beneficiary. The semiconductor name’s client and gaming segments, which make up about 51% of total sales, both stand to benefit from a bump in PC demand. Although there are other non-PC related sales in both businesses such as chips that go into gaming consoles, an increase in PC sales would have a strong impact on a large share of AMD revenues. Add in the company’s latest high-powered AI chip , Instinct MI300X, and we’re looking at a pretty strong setup for 2024. (Jim Cramer’s Charitable Trust is long MSFT, AAPL, NVDA. See here for a full list of the stocks.) 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The rebound emerging in the personal computer market is getting a major boost thanks to artificial intelligence and Microsoft‘s biggest keyboard change in decades.
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