Microsoft’s latest artificial intelligence announcements highlight a key catalyst coming for the tech mega-cap and four other portfolio names: the hardware refresh cycle. During his keynote at Microsoft’s Build last week, CEO Satya Nadella touted the company’s new artificial intelligence-integrated computers . The forthcoming CoPilot+ PCs, slated to roll out next month from Microsoft and other personal computer makers, are powered by advanced chips. They can handle more AI tasks on-device without requiring a data connection to the cloud. It’s been a busy time for AI developments. Two weeks ago, Alphabet ‘s Google held its I/O developer conference and unveiled several generative artificial intelligence offerings , including more search and chat features. At its annual Worldwide Developers Conference next month, it’s believed that Apple will share more information about an expected AI-integrated iPhone. Jim Cramer has said that new AI capabilities on devices and for devices will usher in the ” greatest refresh cycle in history .” It’s been a long time coming. PCs have been in a post-Covid slump since people returned to the office, at least part-time, and didn’t need to outfit their home offices at the same blistering pace as they did during the pandemic lockdowns. Smartphone makers have been waiting even longer for their refresh supercycle. Considering the AI tailwinds, Microsoft, Apple, Broadcom , Nvidia and Best Buy all stand to gain from what is expected to be an AI-induced hardware upgrade stampede. 1. Microsoft CoPilot+ PCs MSFT YTD mountain Microsoft (MSFT) year-to-date performance Microsoft’s rollout of CoPilot+ PCs will encourage users to upgrade their devices, boosting revenues for the company’s More Personal Computing division, which factors in hardware device sales and constitutes around 25% of overall revenue. During last month’s earnings call, management said the Windows OEM (original equipment manufacture) segment, which includes revenue from Microsoft’s licensing software from Windows, has benefited from more PC demand. Revenue for Windows OEM increased 11% year-over-year. It was the third straight quarter of growth as PC volumes returned to pre-pandemic levels. 2. Apple iPhones, Macs AAPL YTD mountain Apple (AAPL) year-to-date performance A refresh cycle would do wonders to assuage a key concern for Apple shareholders — softening demand for the iPhone. The company has faced increasingly stiff smartphone competition in its second-largest market, China, as local rivals grab share. CEO Tim Cook has hinted at forthcoming AI features in Apple’s flagship device, which the Club believes would lead to customers trading up their devices. This is because Apple has a loyal customer base due to its quality products and highly-integrated closed ecosystem. Shareholders received encouraging iPhone news Tuesday. China iPhone shipments surged 52% in April, according to data from the China Academy of Information and Communications Technology. Jim said, “The direction is correct, but that’s just way too big” of a move. He cautioned investors not to read too much into these so-called channel checks because they are volatile and often wrong. He cited the worries ahead of Apple earnings earlier this month about China sales that turned about to be nowhere near what was feared. There are also signs that Apple is readying new Mac laptops with AI-focused M4 chips. While the news has not been confirmed by management directly, an integration of this could boost sales for Apple’s Personal Computing segment as customers flock to the latest model. PCs play a much smaller role in Apple’s overall bottom line compared to the iPhone, but more Mac users broadly will boost Apple’s high-margin Services revenue, which we see as a key growth driver for the Club’s “own it, don’t trade it” stock. 3. Broadcom Wireless, Networking AVGO YTD mountain Broadcom (AVGO) year-to-date performance Broadcom’s Semiconductor division will see a boost from the refresh cycle through its Wireless and Networking segments, which make up 27% and 45% of the division’s revenue. Wireless stands to benefit from the expected increase in iPhone sales because Apple is one of Broadcom’s largest customers. Broadcom provides connectivity chips for Apple’s flagship device. More iPhones sold would raise all boats for component makers. Broadcom’s Wireless segment could certainly use a boost after posting a 4% year-over-year decline in the company’s most recently reported quarter. Broadcom’s Networking revenue benefits from the buildout of artificial intelligence computing infrastructure. We saw this play out in the quarterly numbers as Networking sales jumped 46% on an annual basis. Next month, Broadcom will be the final Club name to report results this earnings season. 4. Nvidia Gaming, Visualization NVDA YTD mountain Nvidia (NVDA) year-to-date performance The refresh cycle will play a role in Nvidia’s overall revenue growth as well. If there’s a surge in PC sales, in particular, this could boost both Nvidia’s Gaming and Professional Visualization segments. Gaming PCs use Nvidia’s graphic processing units (GPUs) to accomplish computationally intensive tasks. In blowout first-quarter earnings last week, management said Gaming revenue surged 18% on an annual basis and Professional Visualization jumped 45%. To be sure, Nvidia’s data center business makes up the majority of company revenue, but the Club welcomes any growth, however incremental, in other lines of the AI chip powerhouse’s business. 5. Best Buy store, online traffic BBY YTD mountain Best Buy (BBY) year-to-date performance The refresh cycle is a prime reason why the Club first initiated a position in Best Buy in March. PCs are one of the electronics retailer’s key product lines. As Microsoft rolls out its AI personal computers, along with peers like HP Inc., and Dell, more customers will walk into stores and browse online for the most current laptops. This is a crucial part of Best Buy’s turnaround story as the company delivered its ninth consecutive quarter of negative comparable sales in February. The underperformance has weighed on shares. Jim acknowledged the Club was early getting into Best Buy — fearing that once the PC refresh took hold we would be priced out of the stock. (Jim Cramer’s Charitable Trust is long NVDA, MSFT, AVGO, BBY, AAPL, GOOGL. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
Microsoft’s latest artificial intelligence announcements highlight a key catalyst coming for the tech mega-cap and four other portfolio names: the hardware refresh cycle.
