2 Stocks to Watch in Personal Computing

By Sam MatteraFool.com

The market for traditional PCs is in decline. Research firm IDC expects PC shipments to fall 6.2% this year. If that happens, it will be the fourth year in a row that PC sales have contracted.

Nevertheless, there's still a market for traditional PCs -- more than 300 million of them were shipped last year. Earlier this month, my Foolish colleague Joe Tenebrusopointed out threeof the best stocks in personal computing. Here are two more I believe are worth watching. They're definitely facing some challenges, but they deserve a spot on any PC-minded investor's radar.

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AMD continues to struggleChipmakerAMD is heavily exposed to the PC market. About half of its revenue comes from its Computing and Graphics segment, which is primarily composed of AMD's PC processors and graphics cards. Fortunately for AMD, neither is a particularly competitive market -- in each instance, AMD faces only one competitor -- but AMD is still far behind in both segments.

When it comes to discrete graphics cards, competitorNVIDIAaccounts for nearly 80% of the market, whileIntelholds a similar share of the market for PC processors. AMD's lower market share is primarily a byproduct of its product portfolio -- in most segments, AMD's offerings simply aren't as good. AMD has been able to supply cheaper products to the cost-conscious, but it lacks high-end offerings.

AMD's top desktop processor, the FX-9590, is outperformed by Intel's high-end Broadwell processors. In the laptop segment, AMD's APUs are offered in many mid-level notebooks, but higher-end portables are almost exclusively the domain of Intel.

The situation in graphics is similar, with AMD's low-end cards matching NVIDIA's offerings, while its high-end cards fall short. For most of the last year, AMD's best card was its R9 295X2, which was really just two cards bundled into one unit.NVIDIA's stand-alone GTX series produced better benchmarks.

But all of that could change, which is why AMD remains a stock worth watching. In June, AMD unveiled a new line of graphics cards with performance comparable to NVIDIA's best. Its new flagship card, the R9 Fury X, is on par with NVIDIA's competition, the GTX 980Ti.

In processors, the situation is less clear, but AMD plans to roll out an entirely new generation of products next year. AMD's next-generation processors, known as Zen, could offer far greater performance.

Photo: Hewlett-Packard

Hewlett-Packard plans to splitHewlett-Packard is the second-largest PC vendor in the world, but it is also a major player in many other business segments, including cloud computing and enterprise software. PC-minded investors, however, should keep it on their radar.

Later this year, Hewlett-Packard will spin its PC business off as a separate, publicly traded company. This company, known simply as HP, will be the second largest vendor of traditional PCs in the world, and one of the more compelling stocks in the space, as it will become the largest almost pure-play PC maker trading on a U.S. exchange.

The recent weakness in the PC market caught Hewlett-Packard's management off guard. On its most recent earnings call, CEO Meg Whitman admitted that the PC market was weaker than she had anticipated. Yet CFO Cathie Lesjak claimed Hewlett-Packard has been taking share from its competitors in many regions, including China. IDC agrees: according to the research firm, Hewlett-Packard's share of the PC market rose by 1.9 percentage points in Q1 2015 compared to the prior-year quarter, and it remains just 0.6 percentage points behind Lenovo, the global leader.

It's worth noting that the post-spinoff HP will also include Hewlett-Packard's printer business. Based on Hewlett-Packard's most recent report, printing will generate about 40% of HP's revenue and around 77% of its earnings. But the market for printers appears intimately linked with the market for traditional PCs, particularly in an office environment.

Later this year, Hewlett-Packard will hold an analyst day to discuss the exact specifics of the split. While post-split HP isn't likely to have much growth potential, it could be an intriguing stock if it's valued appropriately. A commitment to capital returns, for example, and further cost cuts could make it interesting for income-focused investors. Investors should watch it closely.

The article 2 Stocks to Watch in Personal Computing originally appeared on Fool.com.

Sam Mattera has no position in any stocks mentioned. The Motley Fool recommends Intel and Nvidia. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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