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David Einhorn said computer hardware maker HP could ultimately benefit from AI.
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HP will likely see “high-teens growth” in the coming years, he said.
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He said HP stock trading around 10x earnings seems “very reasonable.”
Famed hedge fund investor David Einhorn is keeping an eye on a tech stock that could be an under-the-radar artificial intelligence play.
The founder of Greenlight Capital said his company isn’t necessarily interested in the parts of the market where investor enthusiasm is greatest. Instead, his fund is betting on more affordable names that could potentially benefit from AI in the future.
One of these names is a computer hardware company PKEinhorn said BloombergTV.
“PCs are due for a regular replacement cycle as 2020 and 2021 were heavily purchased post-COVID, and we could have a better-than-normal cycle if ‘AI PCs’ turn out to be a thing,” Einhorn said.
HP is up more than 20% this year and is trading at $36.21 per share as of 2:00 PM ET on Thursday.
Einhorn said he expects the company to be on track for accelerated growth in the coming years. The shares trade at 10 times earnings, pay a dividend yield of more than 3% and dedicate 100% of free cash flow to paying shareholders, he said. The buyback yield is around 7%.
“So we see growth in the mid-teens and high teens over the next few years, just as you go through a cyclical reduction in the number of shares, and for that you only pay ten times earnings – which is very reasonable from our perspective. ” ‘, Einhorn outlined.
More prominent AI games are less attractive as the market has become increasingly expensive, he said.
Einhorn made a similar argument in Greenlight’s latest quarterly letter to investors, saying that the tech sector “nosebleed ratings“have made the market increasingly risky.
“I think the market as a whole is quite expensive, given that we are in a strong part of the economic cycle and earning about 23 times earnings,” he told Bloomberg. “So it’s hard for me, as someone who pays a lot of attention to what I pay for things, to want to pursue those things.”
Moving away from the AI space, Einhorn said the fitness equipment company Platoon looks significantly undervalued. After he made this argument at the Robin Hood Investors Conference on Wednesday, the stock rose 11% that day.
Read the original article Business insider