From The Cody Report: As Vista finally comes over the vista [oh, man, was that one too obvious?], there’s a whole new PC upgrade cycle about to kick in. The market’s seen these types of PC upgrade cycles in the past, back in the 1990s. The first concept of the upgrade cycle came as Microsoft (MSFT) rolled out Windows 3.1 in 1992.
Take a look at how some of the biggest PC-related stocks traded into that cycle:
That concept became a full-blown phenomenon in 1995 when Windows 95 took the PC out of the stone age and into the current paradigm of how we interact with the computer [via mouse and keyboard] and how we use different software applications to divvy up our tasks on the computer.
Again, almost any PC-related stock took off into that cycle:
And that 1995 cycle, which really did change the world in so many economic, social, and productivity ways that we’ll never fully recognize, was followed up with yet another major overhaul to the PC-system, this one coming in 1998, as Windows 98 rolled out into a developing tech bubble, the entire installed PC base upgraded their systems:
As the tech bubble inflated to historic – and unsustainable – proportion, Microsoft tried to push through one final upgrade cycle, from 1998 to 2000. The difference between those two operating systems is minimal though, and the installed PC-user base saw little reason to spend another couple grand to replace a system they’d spent a couple grand on just a couple years before which had been a system they’d spent a couple grand on to replace their most-likely original system.
With a tech, dot-com and telecom bubble popping underneath it, PC-related stocks didn’t do too well that time around either:
In the aftermath of that dot com bubble, Microsoft rolled out another incremental upgrade to the Windows platform which, if you’re reading this program on a non-Apple computer, you’re reading this newsletter on that operating system called XP. XP extended the Windows 2000 upgrade cycle such that users from 2000 and 98 both eventually moved to XP, but over a slow, eight-year cycle.
PC-Related stocks have been range bound since that 1998 roll out:
And here we find ourselves today, with Microsoft rolling out a new operating system -- a major new upgraded operating system, much like the 1995 paradigm shifting Windows 95. But after the Street was burned the last two times through the Windows upgrade cycle, nobody thinks that this cycle will spur a major upgrade cycle from the installed PC-user base. They’re wrong. New dual processor, 64-bit chips from Intel (INTC) and Advanced Micro Devices (AMD) will combine with the video-, voice- and network-centric Vista software operating system and a just-passed tipping point of hundreds of millions of broadband users to spur a major upgrade cycle. And similar to how those PC-related stocks rallied and rallied hard back in those past major upgrade cycles, so too should we expect to see some big moves this time around.
Here are five to watch:
Nvidia (NVDA) :Nvidia’s graphics chips have enabled the amazing video and other graphics that we take for granted in this computer age. The company’s in a particular sweet spot this time around, as their biggest competitor, ATI, is at least a couple quarters behind Nvidia in rolling out the next gen Vista-optimized graphics chips. AMD recently bought ATI, but Nvidia’s graphics solutions are so good that even AMD is giving them more business into this cycle. That said, the management here is part of the crowd who misled investors about corporate pay through changing option grant dates and prices for executives without telling investors. I continue to call for the SEC, IRS and Justice Department to prosecute the individuals responsible for each of these scams, and I won’t buy stocks whose managements have lied to investors.
Micron (MU) : Micron’s rightly been called a “flying pig” by pundits because the company plows so much capital into their business and shows so little profits and cash flows off those capital investments. Regardless, Micron’s sweetly positioned for big growth as Vista requires a ton of DRAM which is exactly where Micron dominates in this country.
Intel: Despite being perhaps the most over-coveraged company in the history of Wall Street, Intel still gets no respect heading into this cycle. The company’s got new chipsets, new platforms for developers and a major new operating system to power up.
AMD: For the first time ever, really, AMD finally got the best of Intel during the last couple years when AMD’s chips ran much cooler and more energy-efficiently than Intel’s. I think Intel’s got their mojo back, but this cycle will likely carry AMD’s fortunes and stock higher anyway.
Corning (GLW): Corning’s set to benefit from this PC upgrade cycle in a way that it never has before. As all these new PCs with Vista are sold, displays will also undergo a new upgrade cycle of their own. Monitors – even LCD monitors from just a couple years ago – pale in comparison to the remarkable images that today’s flat panel and laptop PCs display. Corning’s glass substrates are dominant in these next gen displays and are set to boom during this boom.
When a PC upgrade cycle kicks in and PC stocks lead the market, it's not brain surgery to find the names that will benefit. Vista rises over the vista indeed.
Disclosure: At the time of publication, the firm in which the author is a partner is long GOOG and MSFT