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2 Stocks to Watch From the Prospering Computer Industry
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The Zacks Computer – Micro Computers industry participants are benefiting from steady demand for enterprise devices, including laptops, tablets and smartphones. Industry participants like Apple (AAPL - Free Report) and HP (HPQ - Free Report) are benefiting from these trends. The improving availability of 5G-enabled smartphones has been a key catalyst for industry participants. The launch of foldable and AI and ML-infused smartphones, tablets, wearables and hearables is another major growth driver for the industry participants. Robust demand for production printers, materials and software bodes well for 3-D printing solution providers. However, industry participants are suffering from waning demand for consumer PCs. Geopolitical challenges, including persistent inflation and high interest, are major headwinds. Weak demand in China has been a headwind.
Industry Description
The Zacks Computer – Micro Computers industry comprises companies that offer smartphones, desktops, laptops, printers, wearables and 3-D printers. Such devices are based either on iOS, MacOS, iPadOS, WatchOS, Microsoft Windows, or Google Chrome and Android operating systems. The companies predominantly use processors from Apple, Intel, AMD, Qualcomm, NVIDIA and Samsung. Expanding screen size, better display and enhanced storage capabilities have been the key catalysts driving the rapid proliferation of smartphones. This has been well-supported by faster mobile processors. Laptops, both consumer and commercial, benefit from faster processors, sleek designs and expanded storage facilities. The addition of healthcare features has been driving the demand for wearables.
3 Micro Computer Industry Trends to Watch
Enterprise Adoption RemainsHealthy: Strong enterprise demand has been benefiting the industry participants. The growing adoption of a hybrid working environment bodes well for the players, as demand for laptops and tablets is expected to increase. Demand for smart devices that offer facial recognition, retina scans or finger impressions to verify the user for biometrics is gaining traction as enterprises enhance security.
Impressive Form Factor Drives Demand: Expanding screen size, better display and enhanced storage capabilities have been the key catalysts driving the rapid proliferation of smartphones and tablets. This has been well-supported by faster mobile processors from the likes of Qualcomm, NVIDIA, Apple and Samsung. Improved Internet penetration and speed, along with the evolution of mobile apps, have made smartphones indispensable for consumers. Improved graphics quality is making smartphones suitable for playing sophisticated games. This is driving the demand for high-end smartphones and opening up significant opportunities for device makers.
AI-enabled PCs to Boost Demand: Personal computers (desktops and laptops), be it Windows or Apple’s MacOS-based ones, are expected to benefit from AI infusion. Canalys expects AI-enabled PC shipments to reach 48 million in 2024, representing 18% of total PC shipments. AI-capable PC shipments are projected to surpass 100 million in 2025, which will represent 40% of all PC shipments. This offers significant growth opportunities for industry participants.
Zacks Industry Rank Indicates Bright Prospect
The Zacks Computer – Micro Computers industry is housed within the broader Zacks Computer and Technology sector. It carries a Zacks Industry Rank #55, which places it in the top 22% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is the average of the Zacks Rank of all the member stocks, indicates bright near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than two to one.
The industry’s position in the top 50% of the Zacks-ranked industries is a result of a positive earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are optimistic about this group’s earnings growth potential. Since Feb 29, 2024, the Zacks Consensus Estimate for this industry’s 2024 earnings has moved up 2.4%.
Given the bright outlook, there are many stocks worth watching in the sector. But before we present those stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance and valuation picture.
Industry Lags Sector and S&P 500
The Zacks Computer – Micro Computers industry has underperformed the broader Zacks Computer and Technology sector, as well as the S&P 500 index over the past year.
The industry has gained 7.9% over this period compared with the S&P 500’s return of 10.1% and the broader sector’s growth of 11.6%.
One-Year Price Performance
Industry's Current Valuation
On the basis of forward 12-month P/E, which is a commonly used multiple for valuing computer stocks, we see that the industry is currently trading at 28X compared with the S&P 500’s 20.19X and the sector’s 24.64X.
Over the last five years, the industry has traded as high as 32.27X and as low as 15.54X, with the median being 24.72X, as the chart below shows.
The expanding content portfolio of Apple TV+ and Apple Arcade helped drive subscriber growth. Apple currently has more than 1 billion paid subscribers across its Services portfolio. The App Store continues to draw the attention of prominent developers worldwide, helping it offer appealing new apps that drive the App Store’s traffic. A growing number of AI-infused apps will attract subscribers to the App Store.
The Zacks Consensus Estimate for fiscal 2024 earnings has increased by 1.4% to $6.68 per share over the past 30 days. The stock has gained 9% in the year-to-date period.
Price and Consensus: AAPL
HP: This Zacks Rank #3 (Hold) company’s sustained focus on launching the latest and innovative products is likely to help it stay afloat in the current uncertain macroeconomic environment.
Product innovation and differentiations are the key drivers that have helped HPQ maintain its leading position in the PC and printer markets. The growing interest in AI-enabled PCs is expected to give a fresh boost to HP’s PC demand.
The Zacks Consensus Estimate for fiscal 2024 earnings has been steady at $3.45 per share over the past 30 days. HP shares have gained 6.4% year to date.
Price and Consensus: HPQ
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2 Stocks to Watch From the Prospering Computer Industry
The Zacks Computer – Micro Computers industry participants are benefiting from steady demand for enterprise devices, including laptops, tablets and smartphones. Industry participants like Apple (AAPL - Free Report) and HP (HPQ - Free Report) are benefiting from these trends. The improving availability of 5G-enabled smartphones has been a key catalyst for industry participants. The launch of foldable and AI and ML-infused smartphones, tablets, wearables and hearables is another major growth driver for the industry participants. Robust demand for production printers, materials and software bodes well for 3-D printing solution providers. However, industry participants are suffering from waning demand for consumer PCs. Geopolitical challenges, including persistent inflation and high interest, are major headwinds. Weak demand in China has been a headwind.
Industry Description
The Zacks Computer – Micro Computers industry comprises companies that offer smartphones, desktops, laptops, printers, wearables and 3-D printers. Such devices are based either on iOS, MacOS, iPadOS, WatchOS, Microsoft Windows, or Google Chrome and Android operating systems. The companies predominantly use processors from Apple, Intel, AMD, Qualcomm, NVIDIA and Samsung. Expanding screen size, better display and enhanced storage capabilities have been the key catalysts driving the rapid proliferation of smartphones. This has been well-supported by faster mobile processors. Laptops, both consumer and commercial, benefit from faster processors, sleek designs and expanded storage facilities. The addition of healthcare features has been driving the demand for wearables.
3 Micro Computer Industry Trends to Watch
Enterprise Adoption Remains Healthy: Strong enterprise demand has been benefiting the industry participants. The growing adoption of a hybrid working environment bodes well for the players, as demand for laptops and tablets is expected to increase. Demand for smart devices that offer facial recognition, retina scans or finger impressions to verify the user for biometrics is gaining traction as enterprises enhance security.
Impressive Form Factor Drives Demand: Expanding screen size, better display and enhanced storage capabilities have been the key catalysts driving the rapid proliferation of smartphones and tablets. This has been well-supported by faster mobile processors from the likes of Qualcomm, NVIDIA, Apple and Samsung. Improved Internet penetration and speed, along with the evolution of mobile apps, have made smartphones indispensable for consumers. Improved graphics quality is making smartphones suitable for playing sophisticated games. This is driving the demand for high-end smartphones and opening up significant opportunities for device makers.
AI-enabled PCs to Boost Demand: Personal computers (desktops and laptops), be it Windows or Apple’s MacOS-based ones, are expected to benefit from AI infusion. Canalys expects AI-enabled PC shipments to reach 48 million in 2024, representing 18% of total PC shipments. AI-capable PC shipments are projected to surpass 100 million in 2025, which will represent 40% of all PC shipments. This offers significant growth opportunities for industry participants.
Zacks Industry Rank Indicates Bright Prospect
The Zacks Computer – Micro Computers industry is housed within the broader Zacks Computer and Technology sector. It carries a Zacks Industry Rank #55, which places it in the top 22% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is the average of the Zacks Rank of all the member stocks, indicates bright near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than two to one.
The industry’s position in the top 50% of the Zacks-ranked industries is a result of a positive earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are optimistic about this group’s earnings growth potential. Since Feb 29, 2024, the Zacks Consensus Estimate for this industry’s 2024 earnings has moved up 2.4%.
Given the bright outlook, there are many stocks worth watching in the sector. But before we present those stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance and valuation picture.
Industry Lags Sector and S&P 500
The Zacks Computer – Micro Computers industry has underperformed the broader Zacks Computer and Technology sector, as well as the S&P 500 index over the past year.
The industry has gained 7.9% over this period compared with the S&P 500’s return of 10.1% and the broader sector’s growth of 11.6%.
One-Year Price Performance
Industry's Current Valuation
On the basis of forward 12-month P/E, which is a commonly used multiple for valuing computer stocks, we see that the industry is currently trading at 28X compared with the S&P 500’s 20.19X and the sector’s 24.64X.
Over the last five years, the industry has traded as high as 32.27X and as low as 15.54X, with the median being 24.72X, as the chart below shows.
Forward 12-Month Price-to-Earnings (P/E) Ratio
2 Computer Stocks to Watch Right Now
Apple: This Zacks Rank #2 (Buy) company is benefiting from increasing customer engagement in the services segment. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The expanding content portfolio of Apple TV+ and Apple Arcade helped drive subscriber growth. Apple currently has more than 1 billion paid subscribers across its Services portfolio. The App Store continues to draw the attention of prominent developers worldwide, helping it offer appealing new apps that drive the App Store’s traffic. A growing number of AI-infused apps will attract subscribers to the App Store.
The Zacks Consensus Estimate for fiscal 2024 earnings has increased by 1.4% to $6.68 per share over the past 30 days. The stock has gained 9% in the year-to-date period.
Price and Consensus: AAPL
HP: This Zacks Rank #3 (Hold) company’s sustained focus on launching the latest and innovative products is likely to help it stay afloat in the current uncertain macroeconomic environment.
Product innovation and differentiations are the key drivers that have helped HPQ maintain its leading position in the PC and printer markets. The growing interest in AI-enabled PCs is expected to give a fresh boost to HP’s PC demand.
The Zacks Consensus Estimate for fiscal 2024 earnings has been steady at $3.45 per share over the past 30 days. HP shares have gained 6.4% year to date.
Price and Consensus: HPQ