The market for artificial intelligence (AI) is in high demand in the enterprise arena, but AI has yet to boost the consumer PC market. Worldwide PC shipments have fallen from 341 million in 2021 to 241 million in 2023, according to Statista.
However, conditions for a PC recovery are on the horizon. Microsoft will be ending support for Windows 10 next year, which is expected to drive adoption of next-generation PCs optimized for AI applications. Gartner expects AI PCs to make up 43% of PC shipments in 2025, up from 17% in 2024, which implies a strong upgrade cycle.
Here are two stocks that can help you profit from this opportunity.
1. Micron Technology
Micron Technology's (NASDAQ: MU) leadership in memory and solid-state drives (SSDs) is creating robust growth opportunities in the data-center market. The company just completed its fiscal year with record data-center revenue, driven by demand from both traditional and AI servers. The stock's recent pullback is a great buying opportunity, since more powerful AI-optimized PCs will require more memory and storage capacity, which should provide another catalyst for Micron's business.
Micron expects the end of support for Windows 10 and the launch of Windows 12 to trigger strong sales next year. New AI applications may require people with older PCs to upgrade. For example, new AI PCs will require around 32 gigabytes (GB) of dynamic random access memory (DRAM) to run smoothly, which is higher than the 12 GB average for all PCs last year. This should drive demand for Micron's latest SSD and memory products that can handle resource-intensive software.
Even with weak PC demand this year, Micron's data-center business helped drive strong growth last quarter, with revenue up 93% year over year, as the company is starting to emerge from a down cycle. AI is the catalyst that is driving growth for Micron, and a recovery in PC shipments next year could have the company firing on all cylinders in 2025.
Micron's outlook calls for accelerating growth in the second half of calendar 2025. Wall Street analysts expect the company's earnings to increase by 42%. If Micron shares trade at their historical average price-to-earnings (P/E) ratio of 16, the share price could reach $204 next year, implying upside of 94%.
2. Dell Technologies
Dell Technologies(NYSE: DELL) stock has climbed higher over the last year but recently was trading 32% off its highs. It is a tale of two businesses: AI-driven demand in Dell's server business is overshadowing weak performance in the PC business; half of Dell's business is dependent on the PC market, where revenue from the client-solutions segment fell 4% year over year in the second quarter.
Overall, Dell is a solid business that is performing well. Demand for Dell's AI servers is off the charts right now. Customers like Dell because it offers customized products and excellent customer service. Revenue from infrastructure products jumped 38% year over year in Q2 and helped fuel an impressive 86% increase in the company's earnings.
A recovery in PCs could have the business humming along by this time next year, and that could spell a significantly higher share price. Dell expects its client-solutions business to improve with the upcoming refresh cycle for Windows PCs. Management expects the PC business to improve in Q4 2024, but it expects AI to create long-term growth opportunities for the PC market.
Dell pegs its addressable market in AI hardware and services at $174 billion and growing 22% per year, so investors can justify buying the stock on that opportunity alone. The shares trade at a conservative forward P/E of 16. Analysts expect earnings to increase by 19% in 2025. If investors decide to value the company at a higher P/E, which is possible given the long-term tailwinds in AI, Dell stock could deliver a return that exceeds next year's earnings increase.
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*Stock Advisor returns as of October 14, 2024
John Ballard has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Microsoft. The Motley Fool recommends Gartner and recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
