HP (NYSE: HPQ) stock is trading lower in US premarket price action today. The stock has looked weak amid concerns over slowing PC sales. Today Evercore ISI also downgraded the stock citing a tough PC market and also lowered the company’s earnings estimates.

Last week, Micron sent alarm bells ringing when it said that it expects global PC sales to fall 10% this year. Along with Micron, other chip stocks like Nvidia also fell to their 52-week lows. To be sure, Micron is not alone in predicting a slump in global PC and smartphone sales. Gartner has also lowered its forecast for global PC sales and now expects them to fall 9.5% this year.

The research firm expects smartphone sales to fall 7.5% this year which is worse than the 5% fall that Micron expects. Previously, Intel has also talked about a slowdown in chip demand.

In their earnings release for the fiscal second quarter of 2022, HP said that while consumer demand for PCs is witnessing a slowdown, the enterprise demand is holding up well. Notably, the sales of PCs received a boost in 2020 when most people globally started working from home.

Since then, the demand was reasonably good and PC makers maintained that they are supply-constrained and are able to sell all that they can produce. However, rising inflation has taken a toll on sales of discretionary products and PCs are no exception. Also, there was a lot of demand pull forward which is leading to a slowdown in sales.

The same holds true for other companies like Netflix that benefited from the changed consumer behavior in 2020. The streaming giant’s subscriber growth has mostly disappointed over the last year and in the first quarter of 2022, it lost half a million subscribers.

Evercore ISI is Bearish on PC stocks

Today, Evercore ISI downgraded HP from outperform to inline and lowered its target price from $43 to $36. The brokerage sees tough days ahead for the company in the back half of the year on higher inventories. PC companies generally increase the discounting when sales fall. These discounts are negative for the profit margins. Evercore expects HP’s sales as well as margins to fall in the back half of the year.

However, Berkshire Hathaway chairman Warren Buffett seems to be having other thoughts. Buffett, who has shied away from tech stocks generally, invested billions into HP in the first quarter. Berkshire is now the largest HP stockholder.

Notably, in the first quarter, Buffett also invested $600 million in Apple. It was the first time since the third quarter of 2018 when Buffett bought Apple shares. He has instead sold Apple shares over the period, which he has admitted was a mistake. Despite selling Apple shares, Berkshire is the second-largest stockholder in Apple.

Coming back to HP, its single-digit PE multiples make it a cheap stock. Buffett is also known for his value investing credentials and invests in companies that he believes have a moat and are available at good valuations. The valuations of growth stocks have also taken a hit in 2022 amid the Federal Reserve’s rate hikes.

HP has a dividend yield of 3.1% which is higher than the S&P 500’s dividend yield. The stock was trading almost 2% lower in US premarket price action today. It has lost 15.4% so far in 2022 and has a 52-week trading range of $26.11-$41.47.

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