Which ‘Old Tech’ Stocks Will Benefit From Windows 11 Launch?

Windows 11 officially launched today, and if past updates are anything to go by, the reaction will follow a pattern. First, tech reviewers will generally like it, since the new OS version will offer improvements and be more technologically advanced than its predecessor. Then, as users start to download, there will be complaints on social media and elsewhere. Some complaints will have to do with actual, addressable issues in the software, but others will be from people who got used to Windows 10 and find any change disconcerting. After a while, 11 will become the norm, the confused will get used to it, and even the holdouts will look to download it. Currently, there are 1.3 billion devices running Windows 10, so clearly the change will be an investment opportunity of some kind.

The best opportunities, however, may not be in Microsoft (MSFT). I am bullish on MSFT, but not because of Windows 11. The new OS will be a free download for existing Windows 10 users, so won’t produce revenue there. But there will inevitably be problems, which will take time and money to fix. If anything, the launch could be a drag on MSFT for a while. However, the strength that Microsoft has shown in their commercial and cloud business will more than offset that, and the recent weakness will make the stock look attractive on that basis alone.

That said, those looking to profit specifically from the launch should concentrate elsewhere.

We don’t know at this point exactly how many PCs won’t be able to take the upgrade, but there are system requirements, which probably means that it will be a decent percentage of those 1.3 billion currently running Windows 10. We can’t live without computers and Windows 10 is being phased out by 2025. That will inevitably cause a boost to PC sales of some kind in the coming months, and even a smallish percentage of 1.3 billion is a big number. That means a period of growth for PC makers like HP (HPQ) and Dell (DELL).

Of those two, my preference would be for HPQ. Even without the boost from Windows 11, a strong case can be made for it at current levels.

As you can see, HPQ is down more than 20 percent from its high in May. That is a result of the chip shortage that has been restricting sales, but, logically, that situation must end before too long. And when it does end, there will be some pent-up demand even without the boost from Windows 11.

What makes HPQ so attractive is that it is a great value based on the currently anticipated growth level, so any beat of that will result in an exaggerated response in the stock. It has trailing and forward P/Es of 8.6 and 7.3, respectively, and a PEG ratio, where anything below 1.0 represents value, of 0.89. No matter how you look at it, HPQ is cheap, especially by current standards.

Of course, if PC sales are growing, suppliers to the industry will also benefit. Once again, when looking there, there is one value that stands out: Intel (INTC).

Like HPQ, Intel stock has struggled since the spring. It too has been hit hard by supply issues in the industry and has disappointed in terms of growth. However, Intel is still the biggest chip manufacturer in the world and is positioned to benefit more than anyone from a boost to demand as PC users are forced to upgrade.

Again, like HPQ, INTC is value even without that boost. Both forward and trailing P/Es are below 12 as compared to the average for the S&P 500 of 30. That is largely down to disappointing growth, so the effects of a surge as PC users are forced into an upgrade cycle will be exaggerated, and a significant rise in the stock over the next few months is on the cards.

Both HPQ and INTC are in a category that I have, in the past, labelled “old tech.” They aren’t trendy names with triple-digit multiples. Instead, they are solid, mature companies with stocks that even pay a decent dividend. That makes them less sexy than some other tech stocks, but when 1.3 billion Windows users are upgrading, they have advantages that make them great buys, sexy or not.

*Do you want more Articles and analysis like this? If you are familiar with Martin’s work, you will know that he brings a unique perspective to markets and actionable ideas based on that perspective. In addition to writing here, Martin also writes a free newsletter with in-depth analysis and trade ideas focused on just one, long-time underperforming sector that is bouncing fast. To find out more and sign up for the free newsletter, just click here.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

In This Story

MSFT HPQ INTC

Other Topics

Technology Personal Technology Companies Markets