Many tech stocks stumbled in 2022 as rising interest rates and other macro headwinds rattled the markets. However, many of those stocks also bounced back in 2023 in anticipation of lower rates and a stabilizing macro environment.
That bullishness should persist in 2024 as the PC market recovers, the smartphone market stabilizes, and the artificial intelligence (AI) market expands. I personally believe Intel (INTC -9.20%), HP (HPQ -0.46%), and Micron (MU 2.92%) will all be lifted higher by those tailwinds and outperform the S&P 500 over the next 12 months.
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Intel
Intel is the largest producer of x86 central processing units (CPUs) for PCs and data centers. It experienced a growth spurt during the pandemic as consumers bought new PCs for remote work, online classes, and gaming. Data centers also upgraded their servers with new chips to handle the increased usage of their cloud-based services.
However, Intel suffered a severe slowdown over the past two years as the pandemic ended, and macro headwinds drove companies to rein in their spending. Intel also fell behind Taiwan Semiconductor Manufacturing (TSMC) (TSM 1.26%) in the process race to manufacture smaller and denser chips. So, its smaller rival, AMD (AMD 2.37%) -- which outsourced its production to TSMC -- pulled ahead of Intel with more power-efficient chips. That's why Intel's revenue has declined year over year for seven consecutive quarters.
That situation might seem bleak, but Intel's revenue actually grew sequentially over the past two quarters as the PC market gradually stabilized. Intel also believes its own foundries can catch up to TSMC in the process race in the near future, which would widen its competitive moat against AMD.
Analysts expect Intel's revenue and adjusted earnings to grow 13% and 99%, respectively, in 2024 as those tailwinds kick in. Intel's stock might not seem like a bargain at 30 times next year's earnings, but its rising profits should quickly compress its forward valuations as the PC market heats up again.
HP
HP, one of the world's largest producers of PCs and printers, experienced a similar boom and bust cycle as Intel. Its revenue has declined year over year for six consecutive quarters as its sales of consumer PCs and printers slipped after the pandemic and macroeconomic headwinds curbed its sales of commercial hardware.
However, HP's sales of personal systems (PCs and workstations) still rose sequentially over the past two quarters. Its sales of printers also grew sequentially last quarter.
That stabilization suggests the company has finally reached its cyclical trough -- and analysts expect its revenue and adjusted earnings per share (EPS) to rise 2% and 5%, respectively, in fiscal 2024 (which ends in October 2024). Those growth rates might seem low, but its stock is dirt cheap at eight times forward earnings and pays an attractive forward yield of 3.7%.
Looking ahead, the company plans to lay off 7%-10% of its workforce by the end of fiscal 2025, streamline its PC portfolio, and launch new products for the higher-growth hybrid work, gaming, industrial graphics, and 3D printing markets. It also intends to roll out new subscription services to expand its gross margins. Those ambitious plans could breathe fresh life into HP's aging business and make it an attractive stock for long-term investors again.
Micron
Micron is one of the world's largest producers of DRAM and NAND memory chips. The end of the 5G upgrade cycle in smartphones, the slowing PC market, and macro challenges for other markets all took a toll on its growth over the past year.
But in the first quarter of fiscal 2024 (which ended on Nov. 30), Micron's revenue rose 16% year over year and finally ended its five-quarter streak of declining revenue. It expects an acceleration to 44% revenue growth in the second quarter, which clearly indicates its cyclical slowdown is over.
Micron attributes that recovery to the expansion of the generative AI market, the robust growth of the automotive chip market, and the stabilization of the smartphone market. Analysts expect its revenue to rise 32% for the full year as it significantly narrows its net losses. For fiscal 2025, they expect its revenue to rise 41% as it returns to profitability.
Micron trades at just 14 times next year's earnings, which suggests the market hasn't fully priced in its cyclical recovery yet. It could head much higher in 2024 as more investors realize that brighter days are ahead for this memory chipmaker.
