The growing digitization trend amongst businesses and the rising adoption of advanced technologies like artificial intelligence, big data analytics, and machine learning are boosting the demand for advanced hardware.

However, not all tech stocks are well-positioned to capitalize on the favorable industry trends. When it comes to tech giant Apple, Inc. (AAPL), I think waiting for a better entry point would be wise, given the slowdown in demand across its segments, rising competition, and expensive valuation. Instead, Quantum Corporation (QMCO), Dell Technologies Inc. (DELL), and HP Inc. (HPQ) could be better choices to benefit from the industry trends.

Before diving deeper into the fundamentals of these stocks, let’s discuss what’s shaping the tech hardware industry’s prospects and why this is not the right time to buy AAPL.

The tech industry is constantly evolving, necessitating the need for cutting-edge hardware. As software advances, new and updated hardware becomes necessary to manage the workloads and run those software applications seamlessly. There is a growing demand for advanced hardware in order to drive efficiency and innovation.

The rising investments in digitization across various sectors are driving the demand for hardware such as servers, data centers, etc. Gartner forecasts global IT spending to rise 8% year-over-year to $5.10 trillion in 2024, with spending on devices forecasted to increase 4.8% year-over-year to $722.74 billion this year.

The adoption of emerging technologies like artificial intelligence, machine learning, the Internet of Things (IoT), etc., are all driving the demand for hardware as these technologies require advanced hardware to meet the complex processing and data storage requirements. The IT hardware market is expected to grow at a CAGR of 7.9% to reach $191.03 billion by 2029.

AAPL, which is the world’s most valuable publicly traded company, managed to beat the consensus revenue and earnings estimate in the fourth quarter (ended September 30, 2023). AAPL became the first U.S. company to reach the $3 trillion market capitalization last year.

Despite surpassing the consensus revenue estimates, AAPL’s revenue declined 1% year-over-year to $89.50 billion. In fact, the company reported revenue declines in every quarter in the last fiscal year. Its Product revenue declined 5.3% year-over-year to $67.18 billion in the previous quarter, and its Mac and iPad sales were also down 33.8% and 10.2% over the prior-year quarter.

The Cupertino-based company’s Wearables, Home, and Accessories sales decreased by 3.4% year-over-year to $9.32 billion. However, its iPhone revenue set a September quarter record, along with its Services revenue, which was also at a record high. AAPL’s tepid sales growth could be attributed to the uncertain macroeconomic environment where high inflation had put a hole in consumer’s pockets.

Moreover, a slowdown in the smartphone market, a slower-than-expected recovery of the Chinese economy and rising competition from Huawei in established markets like China could pile further pressure on the company’s sales.

Additionally, the stock trades at an expensive valuation. In terms of forward non-GAAP P/E, AAPL’s 28.23x is 16.3% higher than the 24.27x industry average. Likewise, its 7.20x forward EV/Sales is 149.9% higher than the 2.88x industry average. Furthermore, its 39.35x forward Price/Book is 851.1% higher than the 4.14x industry average.

Considering these factors, let’s analyze the fundamentals of the three Technology – Hardware picks better than AAPL, beginning with the third choice.

Stock #3: Quantum Corporation (QMCO)

QMCO provides products for storing and managing digital video and unstructured data in the Americas, Europe, the Middle East, Africa, and the Asia Pacific. The company offers Myriad All-Flash File and Object Storage Software, Unified Surveillance Platform Software, StorNext Hybrid Flash/Disk File Storage Software, and CatDV Asset Management Software. It also offers ActiveScale Object Storage Software, DXi Backup Appliances, and Scalar Tape Storage.

On August 16, 2023, QMCO announced a partnership with Tiger Surveillance, a provider of video surveillance data management and protection solutions, to deliver end-to-end solutions for long-term retention and archiving of video surveillance data.

QMCO’s Smart NVR, VS-HCI, and USP solutions that capture and store video surveillance data are now certified with Surveillance Bridge software by Tiger Surveillance to easily tier and archive data to public and private storage clouds.

QMCO’s general manager of strategic markets said, “With our Tiger Surveillance partnership, we are extending our video surveillance solutions to include cloud-enabled workflows for greater agility, pay-as-you-grow economics, and easy scalability. In addition, we can more effectively deliver complete end-to-end video surveillance solutions, from ingest to analysis to archive.”

In terms of forward EV/EBITDA, QMCO’s 6.50x is 58.3% lower than the 15.58x industry average. Its 0.32x forward EV/Sales is 88.9% lower than the 2.88x industry average. Likewise, its 14.92x forward EV/EBIT is 26.2% lower than the 20.22x industry average.

QMCO’s total revenue for the fiscal first quarter that ended June 30, 2023, stood at $91.79 million. The company’s non-GAAP gross profit rose 2.1% year-over-year to $35.18 million. Its total non-GAAP operating costs declined 2.3% year-over-year at $35.45 million. Also, its adjusted EBITDA rose 122.8% year-over-year to $771 thousand.

For fiscal 2025, QMCO’s revenue is expected to increase 4.7% year-over-year to $373.57 million. Over the past month, the stock has gained 14.7% to close the last trading session at $0.29.

QMCO’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.

It has a B grade for Value. Within the B-rated Technology - Hardware industry, it is ranked #16 out of 39 stocks. To see QMCO’s Growth, Momentum, Stability, Sentiment, and Quality ratings, click here.

Stock #2: Dell Technologies Inc. (DELL)

DELL designs, develops, manufactures, markets, sells, and supports various comprehensive and integrated solutions, products, and services in the Americas, Europe, the Middle East, Asia, and internationally. The company operates through two segments: Infrastructure Solutions Group (ISG) and Client Solutions Group (CSG).

On July 19, 2023, DELL announced that it entered into a definitive agreement to acquire Moogsoft, a company specializing in AI-driven intelligent monitoring solutions that support DevOps and ITOps. This acquisition strengthens DELL's AIOps capabilities and aligns with its longstanding approach of embedding AI functionality within its product portfolio and as a critical component of its “multicloud by design” strategy.

In terms of forward non-GAAP P/E, DELL’s 11.75x is 51.6% lower than the 24.27x industry average. Its 1.72x forward non-GAAP PEG is 14.7% lower than the 2.02x industry average. Likewise, its 7.62x forward EV/EBITDA is 51.1% lower than the 15.58x industry average.

For the third quarter ended November 3, 2023, DELL’s total net revenue came in at $22.25 billion. Its non-GAAP operating income stood at $1.96 billion. The company’s non-GAAP net income came in at $1.39 billion. In addition, its non-GAAP EPS came in at $1.88. Also, its cash from operating activities increased 443.4% year-over-year to $2.15 billion.

Analysts expect DELL’s EPS and revenue for the quarter ending April 30, 2024, to increase 10.8% and 3.3% year-over-year to $1.45 and $21.62 billion, respectively. It surpassed the Street EPS estimates in each of the trailing four quarters. Over the past nine months, the stock has gained 88.9% to close the last trading session at $78.25.

DELL’s POWR Ratings reflect this positive outlook. It has an overall rating of B, which translates to a Buy in our proprietary rating system.

It is ranked #7 in the same industry. It has a B grade for Growth, Value, Momentum, and Sentiment. Click here to see DELL’s Stability and Quality ratings.

Stock #1: HP Inc. (HPQ)

HP provides personal computing and other digital access devices, imaging and printing products, and related technologies, solutions, and services globally. The company operates through three segments: Personal Systems, Printing, and Corporate Investments. It serves individual consumers, small- and medium-sized businesses, and large enterprises, including customers in the government, health, and education sectors.

On November 7, HPQ announced that it had partnered with Indo-MIM Private Limited to advance metal additive manufacturing and expand its application in various industries. INDO-MIM has invested in three HP Metal Jet S100 printers as part of the collaboration to advance additive manufacturing globally.

Two out of the three printers will be based in Bangalore, India, focusing on material and application development to cater to customers in the Middle East, India, and the rest of the Asia-Pacific region, and the third unit based in Texas will support North American clients and expand their production capabilities.

Savi Baveja, President of Personalization and 3D Printing and Chief Incubation Officer at HPQ, said, “We are proud to partner with INDO-MIM to create new possibilities for their customers leveraging our S100 solution and metals additive manufacturing capabilities. We are thrilled to work with INDO-MIM to drive new metals applications, expand material possibilities and increase precision and productivity.”

“We share a common purpose to accelerate innovation, grow adoption and scale breakthrough applications,” he added.

In terms of forward non-GAAP P/E, HPQ’s 8.80x is 63.7% lower than the 24.27x industry average. Its 0.69x forward EV/Sales is 76.1% lower than the 2.88x industry average. Likewise, its 0.55x forward Price/Sales is 80.8% lower than the 2.86x industry average.

HPQ’s total net revenue for the fiscal fourth quarter ended October 31, 2023, amounted to $13.82 billion. The company’s non-GAAP net earnings increased 8.4% year-over-year to $902 million. Its non-GAAP earnings from operations increased 11.3% over the prior year quarter to $1.25 billion. Also, its non-GAAP net earnings per share came in at $0.90, registering an increase of 9.8% year-over-year.

Street expects HPQ’s revenue for the quarter ending April 30, 2024, is expected to increase 2.1% year-over-year to $13.18 billion. Its EPS for the quarter ending January 31, 2024, is expected to increase 8.4% year-over-year to $0.81. It surpassed the consensus EPS estimates in three of the trailing four quarters, which is impressive. Over the past three months, the stock has gained 14.8% to close the last trading session at $30.34.

HPQ’s POWR Ratings reflect its solid prospects. It has an overall rating of A, equating to a Strong Buy in our proprietary rating system.

It has an A grade for Value and a B for Growth, Momentum, and Quality. Within the Technology – Hardware industry, it is ranked first. In addition to the POWR Ratings stated above, one can access HPQ’s additional ratings for Stability and Sentiment here.

What To Do Next?

43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.

2024 Stock Market Outlook >

DELL shares were trading at $78.13 per share on Thursday morning, down $0.12 (-0.15%). Year-to-date, DELL has gained 2.13%, versus a -0.23% rise in the benchmark S&P 500 index during the same period.

Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.

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