Morgan Stanley: AI PC penetration rate is expected to reach 65% by 2028, with Lenovo and Dell being the biggest beneficiaries

Author: Li Xiaoyin

Source: Hard AI

From the release of Apple's M4 chip, Qualcomm's Snapdragon X, to Microsoft's launch of the heavyweight "Copilot+PC", AI PCs have gradually become the focus of market discussion.

According to a research report released by Morgan Stanley on May 21st, AI PCs will become the next key factor driving the growth of the PC market, with the market penetration of AI PCs expected to increase rapidly from 2% this year to 65% by 2028.

Why AI PCs?

According to Morgan Stanley's definition, an AI PC (AI personal computer) refers to a personal computer equipped with a neural processing unit (NPU) and a performance of at least 400 trillion operations per second (TOPS).

Why does the market need AI PCs?

The report indicates that compared to traditional cloud computing, AI PCs have advantages in edge computing such as low operating costs, low latency, good privacy and security, strong availability (no need for internet connection), and a large personalized space.

Dell Technologies CEO Michael Dell has also stated that the cost-effectiveness of edge AI inference can be improved by 75% compared to cloud computing.

Based on these advantages, more and more AI work will shift from the cloud to the edge in the future.

In our first-quarter survey of Chief Information Officers (CIOs) in the United States, CIOs generally believe that in the next 3 years, the proportion of artificial intelligence workloads in public clouds will decrease by 5 percentage points, while workloads in hybrid environments will increase by 2 percentage points.

The survey results show that 83% of CIOs expect their companies to migrate AI workloads back from public clouds this year.

The report predicts that as market acceptance of AI PCs increases, PC shipments are expected to reach 262 million units in 2024 and 276 million units in 2025; the market penetration of AI PCs is expected to rapidly increase from 2% this year to 65% by 2028, with adjustments made to previous expectations. When the penetration rate reaches 20% in 2025, PC shipments will accelerate.

Specifically for the market, with the launch of the first batch of WoA AI PCs in the second quarter of this year and the gradual popularization of Microsoft's "Copilot+PC", Morgan Stanley predicts that the era of PC revolution is coming, and the commercial PC market will be the first market where AI PCs land. At that time, the main use cases for commercial AI PCs will be productivity tools, with products priced at $1000 and above The report mentions that due to the high requirements of AI PC for chip computing power, the new CPUs launched by AMD and Intel will be crucial.

We expect that the substantial application of AI PC will not be realized until the second half of 2024, and more likely in 2025, when Intel releases its more powerful processor capable of running 40+ TOPS.

Global PC refresh cycles will accelerate from 4.8 years in 2023 to 4.6 years in 2024 and 4.2 years in 2025, reaching a peak of 3.8 years in 2026.

Lenovo and Dell are the biggest beneficiaries

Who will be the biggest beneficiaries of the global AI PC trend?

In terms of PC applications, productivity tools will be the first use case for AI PC, and Microsoft's "Copilot+PC" will be the first "killer application".

In our survey of US Chief Information Officers (CIOs) in the fourth quarter of last year, 40% of CIOs expect to adopt CoPilot in the next 12 months, rising to 50% in the next three years, which will support the demand for AI PC in the next 1-3 years.

The report states that over time, Copilot will become increasingly intelligent, responsive, and predictive. Eventually, AI PC killer applications/use cases will expand to content creation, communication, gaming, and more mainstream consumer applications.

In terms of IT hardware, Morgan Stanley believes that Lenovo will become the preferred choice in the Greater China hardware market, while Dell will become the preferred choice in the US hardware market.

Lenovo:

Among all the PC original equipment manufacturers we cover, Lenovo has the highest sales share in the $1000+ price range for laptops (excluding Apple), and the company also has the highest commercial risk exposure (about 61%), meaning a high market business share. Next, Lenovo's valuation is at a relatively low level in the industry, with a P/E ratio of about 8.8 times for the 2026 fiscal year and a 5-year average P/E ratio of about 8.9 times; lower than Dell's 14.8 times (2026 fiscal year), Asus's 12.2 times (2025 fiscal year), Acer's 16.3 times (2025 fiscal year), and the average level of other PC original equipment manufacturers (15-20 times).

We expect that in the next few quarters, the order volume of Lenovo's H100/H200 products will reach $1.5 billion to $2 billion, contributing 10-15% of sales growth to the company in the 2026 fiscal year.

Regarding Dell:

Dell is a full-stack technology provider with more data under management than any other IT provider, possessing a natural data advantage. Factors that may drive the company's valuation or profitability higher in the future include: 1) hardware cycle conversion; 2) accelerated capital return; 3) inclusion in the S&P 500 index; 4) a new generative AI growth story.

The report sets target prices of HK$15 for Lenovo Group (0992.HK) and $152 for Dell (DELL.N), representing upside potential of 47.35% and 4.5% respectively compared to the stock prices at the time of the report.

In terms of chip supply chain, the report gives "overweight" ratings to SK Hynix, MediaTek, Delta Electronics, and Advantest.

The report also notes that other links in the supply chain may also benefit, including CPU, NB ODM, PCB, substrates, thermal solutions, power supplies, memory, camera modules, display technology, and more