With artificial intelligence (AI) generating so much buzz this year and other disruptive technologies captivating investors’ attention, it’s easy to overlook old guard tech.
Those include personal computers (PCs) and laptops — items that were once considered aspirational, but now are everyday essentials. A variety of companies with exposure to the PC market dwell in the Invesco QQQ Trust (QQQ) and the Invesco NASDAQ 100 ETF (QQQM), positioning those exchange traded funds to potentially capitalize on a rebound in the PC market.
Admittedly, that scenario could take a while to materialize because PC inventory levels in developed economies are elevated, meaning that shipments this year could reach the lowest levels in close to two decades. But as that scenario improves, some QQQ and QQQM components could benefit.
“The prolonged weak demand is expected to shrink the PC market to $206 billion, 26% below the 2021 peak but still 7% above pre-COVID levels. And the pain is expected to ripple among application services providers, whose stocks could be down 3% versus 2022. However, if patterns from past down cycles hold, a window for getting positive on PC original equipment makers may be nearing,” according to Morgan Stanley research.
QQQ and QQQM member firms with PC exposure include Apple (NASDAQ: AAPL), Microsoft (NASDAQ: MSFT), Advanced Micro Devices (NASDAQ: AMD), and Intel (NASDAQ: INTC), among others. Fortunately for those companies and investors considering the Invesco ETFs, the PC market could be nearing a bottom.
“We believe a bottom for the PC market is likely in within the next quarter, but estimates will have to come down before entry points emerge and we’ll keeping an eye on channel inventory for a clearer call,” noted Morgan Stanley analyst Erik Woodring.
The ETFs’ consumer internet exposure could also be a surprising source of strength this year, particularly if the U.S. economy averts a recession. Companies in the ETFs with exposure to that industry include Amazon (NASDAQ: AMZN), Booking Holdings (NASDAQ: BKNG), and eBay (NASDAQ: EBAY), to name a few.
“Amid a tough macro backdrop, investors should note companies that continue to reach for cost savings, including through job cuts, to protect cash flow. Despite the slower growth for e-commerce and online advertising expected this year in the U.S., analysts say mega-cap stocks could emerge stronger in 2024 and beyond,” concluded Morgan Stanley.
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.
