Five Stocks for the Vista Upgrade Cycle
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 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 and 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.
Cody Willard is a partner at a
buy side firm and a columnist for the Financial Times. He also writes a
trading blog on TheStreet.com and is an adjunct professor teaching a
class at Seton Hall University about the market, media and technology. At the time of publication, the firm in which Mr.
Willard is a partner was long Microsoft.