Best Buy (BBY) recently released strong earnings data indicating that demand for technology products has exceeded expectations, potentially signaling the onset of a consumer device upgrade cycle. Technology products are not intended for permanent use, as consumers typically engage in periodic upgrades to access the latest features and maintain device compatibility. However, under the influence of inflationary pressures, previous upgrade cycles have been prolonged. Now, with the emergence of new technologies such as artificial intelligence, which deliver significant experiential improvements, consumers have more compelling reasons to upgrade.
Best Buy’s outstanding third-quarter performance, with both sales and adjusted earnings per share surpassing market expectations, prompted the company to raise its full-year outlook. The most noteworthy signal from the earnings report came from management’s assessment of consumer behavior. Company executives noted that consumers are willing to pay for upgrades as long as there are reasonable innovative features. This may indicate that the upgrade cycle is still in its early stages. Growth in computing devices will continue to benefit from replacement demand and the push of artificial intelligence innovations. For example, Microsoft’s Windows 10, which many users still rely on, has ended official support, creating potential upgrade demand for Microsoft as well as computer manufacturers such as HP and Dell.
This trend also presents investors with opportunities to focus on value in related sectors. Currently, valuations for some technology and retail stocks remain relatively reasonable. For instance, Microsoft’s device business has shown moderate growth, and if device spending rebounds, its growth could receive a further boost. Meanwhile, Dell and Best Buy are trading at forward price-to-earnings ratios of around 12x, while HP is even lower at approximately 7x. These valuation levels suggest they may be undervalued. Driven by a potential technology product upgrade cycle, these companies stand to benefit. Taking historical return data into account—for example, the Stock Advisor service has achieved average returns far exceeding those of the S&P 500—screening for and focusing on such stocks with growth potential is a direction worth considering at present.
