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The post-pandemic economy has been hitting consumer electronics retailer Best Buy (NYSE: BBY) particularly hard. While consumers were keen to upgrade their PCs and purchase new gadgets in 2020 and 2021, that period was followed by a brutal downturn in the PC market. Globally, PC shipment volumes crashed 16.5% in 2022 and 13.9% in 2023, according to IDC.

Best Buy is dependent on consumer excitement for new products, something that's largely been absent for the past couple of years. Comparable sales slumped 6.1% in the first quarter of fiscal 2025, adding to a 10.1% tumble in the first quarter of fiscal 2024. For the full year, Best Buy is expecting a small comparable sales decline.

Best Buy stock has been hammered since peaking in late 2021, but it's been surging since the company reported earnings in late May. The reason appears to be artificial intelligence, specifically the potential for AI-infused devices to boost demand and prices. While Best Buy stock is still down roughly 37% from its pandemic-era high, it's soared more than 20% in the past few weeks.

The AI PC wildcard

While laptops featuring Intel's Meteor Lake chips have been available since the end of last year, the age of the AI PC truly kicks off this summer. Meteor Lake chips feature built-in AI processors, but they're not particularly powerful compared to what's in the pipeline.

Microsoft is banking on AI driving a renaissance in the Windows PC market. MacBooks from Apple have been tough to beat in performance and battery life since the tech giant switched to its own custom laptop chips. Microsoft is looking to close those gaps by getting consumers excited about the AI capabilities of Windows.

The first Windows laptops featuring Qualcomm's new Arm-based, AI-infused processors arrive this month from Microsoft and the major PC manufacturers. Early benchmarks point to Qualcomm's chips being powerful and efficient, and the beefy AI processing capacity will power Microsoft's new AI features built into Windows.

A bit later in July, the first systems featuring AMD's new Ryzen AI chips will find their way to market. These chips will offer similar AI horsepower compared to Qualcomm's chips, as well as significant performance improvements.

A few months after AMD's AI chips launch, systems powered by Intel's upcoming Lunar Lake chips will hit the market. Lunar Lake is focused on delivering unrivaled power efficiency, and the chips come with big upgrades for AI and graphics compared to Meteor Lake.

The big question is this: Will these new AI PCs drive a major recovery in the PC market? Microsoft has unveiled a few new AI features for Windows that will require a new AI PC, including the controversial Recall, which takes screenshots of PC activity and allows users to search using natural language. Whether that appeals to consumers remains to be seen.

A reasonable valuation, regardless

While Best Buy is going to need something exciting to drive its sales higher, the retailer has done a great job remaining profitable despite a miserable demand environment. The company expects its adjusted operating margin to range from 3.9% to 4.1% this year. That would be nothing to write home about during normal times, but given all the headwinds Best Buy is facing, it's a solid result.

Best Buy stock now trades for around 15 times the average analyst estimate for full-year earnings. Even if the AI PC is slow to catch on, that's a reasonable price to pay for a retailer that has proven that it can churn out profits in the worst of conditions. If the AI PC does catch on quickly, the company could beat its full-year expectations as consumers upgrade their devices.

Best Buy stock doesn't look like it has much downside. Sales have already crashed, and the PC market has bottomed out. However, there's a significant upside if AI PCs trigger an upgrade cycle. While it's hard to put odds on that happening, Best Buy stock is a good way to bet on the AI PC revolution.

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Timothy Green has positions in Intel. The Motley Fool has positions in and recommends Advanced Micro Devices, Apple, Best Buy, Microsoft, and Qualcomm. The Motley Fool recommends Intel and recommends the following options: long January 2025 $45 calls on Intel, long January 2026 $395 calls on Microsoft, short August 2024 $35 calls on Intel, and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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