Key insights
- The author argues HPQ is undervalued due to its perceived lack of AI exposure. They suggest management actions like spinning off the printer business, cutting the dividend to invest in AI, and highlighting AI PC adoption could lead to a significant stock revaluation. The author is long HPQ calls, anticipating a substantial price increase.
HP has been completely left behind in the AI trade-- market cap of $20b is peanuts these days with the amount of cash flowing into anything AI adjacent. On top of that, options are incredibly cheap with most January strikes priced at 55% IV. All it would take is a couple of minor changes by management and I believe the market would aggressively rerate this stock. It wouldn't take much for it to go from $20b to $80b market cap ($25 -> $100 share price) if wall street changed the way they view this company.
In order to get a fresh look and rewrite the narrative, management would only need to deliver a few of these things for this stock to become a stonk:
- ditch (shut down or spin off) the printer biz. it's high margin but is declining and is a major drag on the story - kill the dividend and announce a massive investment in AI with that cash. The high dividend currently makes it look like a yield trap, not a sexy AI play. If they can't find anything to do with the cash, at least use it to buyback shares, not pay a juicy dividend - Push the AI PC adoption story and include % of computers sold that are AI optimized in their earnings. Push to increase the refresh cycle of PCs and enterprise computers due to AI requirements.
If they do 2 of these 3 things, they could easily 4x from here. They already have the revenue and the size to explode, they just need a tiny bit of AI love to rocket. It's getting hard to find any AI adjacent play anymore that hasn't already 2-4x in the past 12 months, and HPQ is actually down 13% b/c of their traditionally boring narrative.
Long 500x Jan27 $50 calls at $.50 $25k purchase goes to $2.5mm if HPQ takes off to $100 by January.