Over the past year, AI technology has surged, causing stocks like Nvidia (NVDA) to soar to high valuations. Amid this AI frenzy, investors are keen to find affordable ways to gain exposure. David Einhorn (Trades, Portfolio), founder and president of Greenlight Capital, sees an opportunity in HP (HPQ, Financial), a tech stock that has been overlooked during the AI boom.
In a recent interview, Einhorn mentioned that his firm aims to invest in less popular yet more affordable companies that could benefit from AI in the future. One such company is HP, known for its PCs and printers. With many PCs bought during the pandemic now reaching the end of their life cycle, Einhorn believes a new replacement cycle could emerge, especially with the potential advent of "AI PCs."
In May, HP unveiled a range of AI-powered business PCs, including the EliteBook series and ZBook mobile workstations, positioning itself as a contender in the AI PC market. In the third quarter of fiscal 2024, HP broke a nine-quarter streak of revenue declines, posting a 2% year-over-year increase to $13.519 billion, driven largely by its personal systems business.
HP's stock rose 1.73% to $36.47, marking a year-to-date gain of approximately 22%. In contrast, Nvidia's stock surged over 190% during the same period. Einhorn is optimistic about HP's growth potential, noting its low P/E ratio of 10, dividend yield of over 3%, and a share buyback yield around 7%, implying a strong cash flow return to shareholders.
As the market continues to become more expensive with the S&P 500 P/E ratio around 23, Einhorn believes that the attractiveness of well-known AI firms is diminishing. His recent investor letter also highlighted the increasing market risks posed by tech sector overvaluations.
