The recent fluctuations in the stock market have sharply brought to focus the challenges that two major players in the PC industry, Dell Technologies and HP Inc., are currently navigatingOn November 27, before the US market opened, Dell saw a staggering drop of over 11%, while HP faced a decline exceeding 8%. The root of this downturn for both companies is strikingly similar: their earnings guidance for the upcoming quarters fell short of market expectationsDespite the ongoing bullish trend in major tech stocks, the underperformance of these two giants serves as a stark reminder that many tech companies are struggling to meet high valuation benchmarks.

HP, in particular, had investors on edge after the release of its financial report for the fourth quarter of the 2024 fiscal yearThe announcement came after market hours on November 26, revealing better-than-expected revenues but disappointing guidance for the first quarter of fiscal 2025. HP reported net revenues of $14.06 billion, slightly exceeding analysts' expectations of $14 billion, marking a modest year-on-year growth of 1.7%. Notably, revenues from the personal computer segment accounted for $9.59 billion, reflecting a 2% increase, while consumer PC revenues modestly decreased by 4% alongside a 5% growth in commercial PC sales

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The printing segment managed to keep pace with a 1% growth to $4.45 billion.

Profit margins were also promising; HP's adjusted earnings per share stood at $0.93, up from $0.90 in the same quarter the previous yearHowever, it was the forecast for the next quarter that rattled investorsHP projected adjusted earnings per share for the first quarter of fiscal 2025 between $0.70 to $0.76, significantly lower than the anticipated $0.86. Despite not being a drastic miss, the news was enough to send shares tumbling.

This reaction can be understood against the backdrop of a sluggish recovery in the PC marketHP's CEO, Enrique Lores, previously expressed optimism about growth in the PC sector for the 2024 fiscal year, yet the latest quarterly results seem to contradict that sentimentConcerns are exacerbated by recent downgrades from institutions like Morgan Stanley, which reduced HP’s target price from $41 to $40.

Similarly, Dell Technologies reported a sharp decline in its stock value, primarily due to disappointing earnings results

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The company’s revenue for the third quarter of its 2025 fiscal year reached $24.4 billion—a 10% year-on-year increase but short of the $24.59 billion that analysts were projectingIts diluted earnings per share rose 16% to $1.58, and the non-GAAP diluted earnings per share reached $2.15, representing a 14% increase, slightly above expectationsHowever, Dell's forecast for the upcoming quarter also proved disappointing, as it anticipated revenues between $24 billion and $25 billion, which fell below the $25.6 billion expected by analysts.

Despite strong order growth from AI server solutions and marked improvements in the Infrastructure Solutions Group, Dell faces significant hurdlesTraditional markets for personal computers and storage solutions are experiencing weakened demand, raising red flags over the overall trajectory of the company’s business.

The struggles facing both Dell and HP are reflective of a larger narrative within the PC industry, which has historically been dominated by these firms

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However, as competitive pressures mount and market demands shift dramatically, the traditional PC sector is struggling to keep paceConsole gaming, tablets, and mobile devices are increasingly fulfilling consumer needs for portability and instant connectivity, leading to reduced demand for traditional PCsA report from Gartner highlights this trend, indicating that global PC shipments fell to 64.3 million units in Q3 2023, down 7% year-on-year and marking eight consecutive quarters of decline.

The slow progress of technological innovation in the PC segment has hindered the industry’s ability to capture new customers, particularly given consumers' heightened expectations regarding performance enhancements and design aestheticsWith products becoming increasingly homogeneous, the lack of groundbreaking innovations has dulled market interest and impeded robust recovery efforts.

Nevertheless, the outlook for the PC sector isn't entirely bleak

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Industry experts are suggesting that the integration of artificial intelligence into personal computing could catalyze a resurgence in demandAI-enhanced PCs may soon be at the forefront of a major upgrade cycle as they offer more sophisticated computation, intelligent interaction, and personalized functionalities that resonate with contemporary consumer needsFor instance, users will be able to leverage voice commands to manipulate their PCs or retrieve information, while computers will become adept at recognizing and adapting to user habits, facilitating smarter decision-making processes.

American investment bank analysts project that by 2027, PCs equipped with AI functionalities could number 127 million in annual salesCanalys’ Chief Analyst, Ishan Dutt, believes that the accelerating pace of AI adoption in personal computing will result in over 150 million AI-capable PCs shipped by the end of 2025.

In conclusion, while the immediate outlook for Dell and HP appears troubled in the wake of disappointing earnings projections, there is a glimmer of hope on the horizon