HP shares under pressure following analyst downgrade

Shares of the PC and printer manufacturer HP experienced a significant decline today, losing up to 4.8% at times before slightly recovering to a loss of 4.1%. Following the split of the former Hewlett-Packard company, HP retained the low-growth business segments, namely PCs and conventional inkjet printers. Although some hoped for a year-end boost from the launch of the "AI-PC," an analyst stated today that this renewal is likely to come only next year or even later. Citigroup analyst Asiya Merchant downgraded HP from "Buy" to "Neutral" today, while keeping her price target unchanged at $37. HP shares started the day at $35.87, already just below the target. This meant the analyst either had to raise her target to maintain a "Buy" rating or downgrade the shares to "Neutral." In her statement, Merchant expressed a grim outlook for the entire PC sector, writing: "Current checks in the PC ecosystem suggest that the short-term PC refresh opportunity remains extended due to macroeconomic uncertainties." Many had hoped that the introduction of AI-enabled PCs this year, combined with recent interest rate cuts by the Federal Reserve, would lead to more PC upgrades. After all, PCs have been in a post-pandemic slump for over two years. While Merchant believes the refresh will happen, she deems a timeframe of 2026/2027 more likely. What are the reasons for the delay? Numerous uncertainties still exist, including current tensions in the Middle East and the upcoming U.S. elections. Additionally, interest rates are still high compared to pandemic and pre-pandemic times. Moreover, expenditures for AI data centers could crowd out other corporate IT spending in 2024, pushing the PC refresh to at least the next year. The 2026/2027 timeframe might seem somewhat conservative, especially as Windows 10 support ends in October 2025. Furthermore, new AI-PC chips are just hitting the market, and potential buyers are evaluating the offerings. Therefore, this downgrade might prove correct in the short term but could be wrong next year. It still seems that AI-enabled devices should be positive for the industry from 2025 onward. Before you buy HP shares, consider this: The Motley Fool Stock Advisor analyst team has just identified the 10 best stocks for investors to buy right now... and HP was not among them. The 10 stocks that made the cut could generate significant returns in the coming years. Think about when Nvidia was on this list on April 15, 2005... if you had invested $1,000 back then, it would be worth $744,197 today!* Stock Advisor offers investors an easy-to-understand plan for success, including guidance on building a portfolio, regular updates from analysts, and two new stock tips per month. Since its inception in 2002, the Stock Advisor service has outperformed the S&P 500 by more than fourfold.