Regrets Missing NVIDIA? Hedge Fund Professionals Believe This Stock Could Help You Catch Up

Over the past year, with the explosive growth of AI, AI concept stocks such as Nvidia have seen their prices soar to unaffordable levels. How to get a slice of the pie in the AI boom cheaply has become one of the topics of interest to investors.

David Einhorn, the Wall Street hedge fund heavyweight, and founder and president of Greenlight Capital, is watching a tech stock that has been overlooked in the AI boom.

Einhorn said in an interview with the media that his firm is not necessarily interested in the market sectors that investors are most enthusiastic about. Instead, his fund is betting on cheaper companies that may benefit from AI in the future. One of these targets is HP, a manufacturer of personal computers and printers.

"PCs are due for a regular replacement cycle, because a lot were bought after COVID in 2020, and 2021, and we could have a better than normal cycle if 'AI PCs' turn out to be a thing," Einhorn said.

In May, HP launched a family of commercial AI PCs, including the EliteBook series of high-end AI business notebooks, the Z series AI business notebooks, ZBook mobile workstations, one-stop Z series AI all-in-ones, and the portable computer assistant AI Xiao Hui, among other products and related technologies, officially entering the AI PC market competition.

In the third quarter of the 2024 fiscal year, after nine consecutive quarters of revenue decline, HP finally achieved revenue growth, with total revenue for the quarter growing 2% year-on-year and 6% quarter-on-quarter to $13.519 billion. This growth was mainly due to the strong performance of its personal systems business, which includes PCs, laptops, tablets, etc.

On Thursday, HP's stock rose by 1.73%, closing at $36.47; the stock has risen about 22% this year. In comparison, the stock price of AI leader Nvidia has risen by more than 190% during the same period.

Einhorn said he believes HP will accelerate growth in the coming years. He pointed out that the stock has a price-to-earnings ratio of 10 times, a dividend yield of over 3%, and returns 100% of its free cash flow to shareholders. The repurchase yield is about 7%.

He also said that as the market becomes more and more expensive, the appeal of well-known AI companies has diminished.

"I think the market as a whole is really quite expensive, considering we're in a strong part of the economic cycle and we're about 23 times earnings. So it's hard for me, as somebody who actually pays a lot of attention to what I pay for things, to want to chase those things," Einhorn said.

Einhorn also made a similar point in his latest quarterly letter to investors at Greenlight Capital, stating that the high valuation in the technology sector is increasing market risk.