HP Inc.’s (HPQ Quick QuoteHPQ - Free Report) quarterly top-line results continue to be battered by soft personal computer (PC) demand. The PC and printer maker’s net revenues for the recently reported fourth quarter of fiscal 2023 fell 6.5% year over year to $13.8 billion. In constant currency (cc), revenues declined 5% in the fourth quarter.

The dismal top line reflected a weak performance in HPQ’s Personal Systems (“PS”) and Printers segments. PS revenues (68% of net revenues) came in at $9.4 billion, which was 8% lower than the year-ago quarter’s figure (7% down at cc). Our estimate for the PS segment’s revenues was pegged at $9.08 billion.

Fourth-quarter revenues from the Consumer PS segment declined 1% year over year to $3.19 billion, while the Commercial PS division’s sales plunged 11% to $6.21 billion. Our revenue estimates for the Consumer PS and Commercial PS segments were pegged at $2.4 billion and $6.68 billion, respectively.

In 2020 and 2021, PC manufacturers benefited from the increased demand amid the pandemic-induced remote-working and online learning wave. The pandemic necessitated using PC systems for remote work, web-based learning, video conferencing, video gaming, social media, consumer entertainment and streaming or online shopping.

However, consumers have become more cautious about their spending due to inflationary pressure, rising interest rates and fears of a possible recession. Furthermore, enterprises are delaying their large IT spending amid macroeconomic challenges.

HP Expects PC Market Recovery in FY24

Despite a weak top-line performance, HP is optimistic about PC market recovery. During its fourth-quarter earnings conference call, the company suggested that artificial intelligence (AI) PCs could be a key growth driver beginning next year.

However, HPQ cautioned that the market would not immediately shift to AI PCs. HP anticipates gradual penetration of AI PCs, with some in 2024 and stronger in 2025. The company forecasts that 40%-60% of all PCs will be AI PCs in the next three years. Therefore, it is planning to roll out AI PCs in the second half of 2024 to grab the growing opportunities in this category.

PC market recovery expectations of HPQ coincide with the independent research firm Gartner’s views. During its preliminary data release for third-quarter 2023 global PC shipments, Gartner pointed out that the worst could be over for vendors by the end of 2023, and PC market recovery can be seen in 2024 due to increased demand driven by the PC refreshment cycle.

Mikako Kitagawa, the Director Analyst at Gartner, stated, “The business PC market is ready for the next replacement cycle, driven by the Windows 11 upgrades. Consumer PC demand should also begin to recover as PCs purchased during the pandemic are entering the early stages of a refresh cycle.”

Garter forecast that PC shipments would grow 4.9% in 2024, driven by increased shipments across both the business and consumer segments.

Additionally, we believe that inventories coming near healthy levels and the growing interest in generative AI-enabled PCs might give a fresh boost to PC demand in the years ahead.

Zacks Rank & Stocks to Consider

HP currently carries a Zacks Rank #3 (Hold). Shares of HPQ have declined 0.5% year to date.

Some better-ranked stocks from the broader technology sector are Intel Corporation (INTC Quick QuoteINTC - Free Report) , Aspen Technology, Inc. and Datadog, Inc. (DDOG Quick QuoteDDOG - Free Report) . While Intel and Aspen each sports a Zacks Rank #1 (Strong Buy) at present, Datadog carries a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Intel’s fourth-quarter 2023 earnings has moved north 10 cents to 43 cents per share in the past 30 days. The consensus estimate for 2023 earnings has increased 30 cents to 91 cents in the past 30 days.

Intel's earnings beat the Zacks Consensus Estimate in three of the trailing four quarters and missed once, delivering an average surprise of 136.3%. Shares of INTC have rallied 64.9% year to date.

The Zacks Consensus Estimate for Aspen's second-quarter fiscal 2024 earnings has moved north 14 cents to $1.49 per share in the past 30 days. The consensus estimate for fiscal 2024 earnings has increased 5 cents to $6.63 per share in the past 30 days.

Aspen's earnings missed the Zacks Consensus Estimate in each of the trailing four quarters, delivering an average negative surprise of 32.3%. Shares of AZPN have dropped 10.4% year to date.

The Zacks Consensus Estimate for Datadog's fourth-quarter 2023 earnings has moved north 9 cents to 43 cents per share in the past 30 days. The consensus estimate for 2023 earnings has increased 19 cents to $1.51 per share in the past 30 days.

DDOG’s earnings beat the Zacks Consensus Estimate in each of the trailing four quarters, delivering an average surprise of 28.6%. Datadog shares have rallied 52.3% year to date.