Nvidia & Goldman See Common Theme: Next AI Trade Will Be In 'PC Upgrade Cycle'

The decline in personal computer sales may end as soon as next year as consumers will be enticed to upgrade their legacy Covid-era PCs. The introduction of PCs equipped with fancy new AI chips, capable of running as digital assistants in the background and faster computing power, could boost sales that have been sagging since the upgrade cycle boosted by remote workers during Covid peaked in late 2021.

On Sunday, comments from AI chip leader Nvidia, whose CEO, Jensen Huang, told the audience at the 2024 Taipei International Information Technology Show, better known as Computex, about exciting new deals with two PC makers, Asus and MSI, to include AI chips in desktops and laptops. 

"Your future laptop will be constantly helping you in the background," Huang said, adding, "The PC will run apps that are enhanced by AI, from writing, photo editing, to digital humans that are AIs." 

 Asus and MSI did not provide timelines for when these new laptops will hit e-commerce websites or brick-and-mortar shelves of electronic retailers. But when they do, they're expected to unleash an AI PC upgrade wave, thus boosting sales for technology hardware stocks.

That's precisely what Goldman analysts believe in a recent note titled "The Next AI Trade: PC AI Upgrades." 

Analysts led by GS' Faris Mourad believe the tech hardware industry, which peaked during the Covid upgrade cycle, is primed for another liftoff. 

"During the pandemic, the tech hardware industry peaked as the majority of work-from-home employees purchased equipment. The space currently has fully unwind this cycle and we notice stocks like HPQ trading at 9x their 2025 earnings estimates.

"Most PCs purchased during the pandemic are expected to be replaced soon. We expect discernable new features of AI, enhanced security, and stronger computational power in upcoming PC and mobile device models, incentivizing the US consumer to spend more on newer equipment than historically, creating an unusually stronger cycle."

Mourad revealed that GS clients can capitalize on the AI PC upgrade cycle through the new PC & Mobile Device AI Upgrades basket (GSXUPCAI). 

"The basket is composed of technology hardware stocks that may benefit from PC and mobile device renovations that could include AI features. The basket can trade up to $250m in one day with no name exceeding 10% of ADV," the analyst said. 

GSXUPCAI is catching up to the AI Software & Hardware index (GSTMTAIP). 

Valuations for this sector remain the lowest compared to NDX and AI software and hardware, but the gap is narrowing.

Here are the individual weightings of the new index:

This new theme builds on the previous notes "The Next AI Trade" and "The Next AI Trade... In Europe", which outline power grid upgrades will be needed to power AI.