Last Update 12 May 26

HPQ: Rising Memory Costs Will Compress Margins And Challenge 2026 EPS Guide

Analysts have broadly reduced HP's targets, with several firms cutting their price targets by $2 to $9 to a range of around $16 to $22, citing rising memory costs, pressure on PC and printer demand, and questions around the durability of the company's FY26 EPS guidance.

Analyst Commentary

Recent research on HP clusters around a similar message for investors: the stock may look inexpensive on headline metrics, but many bearish analysts see that as a value trap risk rather than a clear opportunity, given the pressures on earnings and cash flow guidance.

The bulk of the recent target moves center on HP's fiscal Q1 print and the reaffirmed FY26 EPS and free cash flow targets, which management now frames toward the low end of prior ranges. Bearish analysts are questioning how realistic those longer term targets are when memory costs, PC and printer demand trends, and leadership changes are all pulling in the wrong direction at the same time.

Several firms have trimmed HP's price targets into the mid teens to low twenties and maintained cautious ratings, including Underweight, Underperform and Neutral stances. A few point to the stock's low valuation multiple, but still flag that their models imply further downside versus management's FY26 EPS goals.

On the more neutral side, some research commentary acknowledges that fiscal Q1 results were roughly in line, with help from Windows 11 refresh activity and AI related PC demand, and that the company is still targeting meaningful EPS and free cash flow outcomes by FY26. However, those same reports emphasize that the path to those outcomes has become more challenging as memory and storage now represent a larger share of PC bill of materials and as industry PC shipment expectations are reset.

Against that backdrop, the spread of ratings from Sell and Underweight up through Neutral and In Line reflects a divided view on whether the current share price already reflects these risks or whether investors should still price in further execution pressure.

Bearish Takeaways

Bearish analysts cutting targets into the US$16 to US$20 band cite a mix of slower PC unit trends, higher memory costs and softer printer demand as key risks to HP's ability to hit its FY26 EPS guidance.
Several firms that keep Underweight or Underperform ratings argue that, even though the stock screens as cheap, their models still imply double digit downside to the company's FY26 EPS targets, which they see as a sign that the equity valuation could be too rich for the current risk profile.
Concerns around execution are front and center, with repeated references to margin pressure in the Personal Systems segment, rising memory and storage as roughly 35% of PC bill of materials, and ongoing margin strain that could limit earnings growth even if revenue holds roughly steady.
Some bearish research also flags leadership transition uncertainty and the reset in industry PC shipment expectations to double digit declines as additional overhangs that might weigh on HP's growth outlook and justify lower target prices until there is clearer evidence of delivery against the long term EPS and free cash flow guide.

What's in the News

Reports indicate Iran's Islamic Revolutionary Guard Corps is planning cyber operations against U.S. tech companies with a presence in the Middle East, and HP is among the firms investors are watching in this context (The Hill).
Media reports suggest NVIDIA has been in talks for more than a year to acquire a large PC manufacturer, with market speculation focusing on Dell and HP after both stocks moved on the news, while none of the companies have confirmed any discussions.
HP announced a broad refresh of its AI focused commercial PC lineup, including the HP EliteBook 6 G2q Next Gen AI PC and expanded EliteBook, ProBook and EliteDesk ranges, aimed at supporting on device AI workloads, hybrid work and tighter endpoint security.
The company introduced HP IQ and the HP NearSense connectivity layer across select AI PCs and workplace devices, aiming to tie together local AI capabilities, cross device workflows and enterprise manageability.
HP provided earnings guidance for Q2 2026 of GAAP diluted EPS between US$0.52 and US$0.58 and maintained its fiscal 2026 GAAP diluted EPS outlook in a range of US$2.47 to US$2.77.

Valuation Changes

Fair Value: Model fair value remains unchanged at $16.0 per share, indicating no shift in the central valuation anchor.
Discount Rate: The discount rate has fallen slightly from 9.89% to 9.80%, a modest reduction in the required return used in the valuation model.
Revenue Growth: The revenue growth assumption has been adjusted slightly, from a 1.08% decline to a 1.06% decline, signaling only a very small change in the expected revenue trend.
Net Profit Margin: The profit margin assumption is effectively stable, remaining at 4.43%, which keeps earnings expectations broadly consistent with prior modeling.
Future P/E: The future P/E multiple has edged down from 7.43x to 7.41x, a very small change in the valuation multiple applied to projected earnings.

9 views

Key Takeaways

Strategic AI investments and acquisitions could boost growth if effectively differentiating products and integrating assets; failure may limit revenue and earnings projections.
Mitigating geopolitical risks and optimizing cost savings are crucial; failure may compress margins, impacting growth forecasts adversely.
Competitive pressures, tariffs, weak consumer demand, and geopolitical risks pose significant threats to HP's revenue growth and profit margins.

Catalysts

About HP

Provides personal computing, printing, 3D printing, hybrid work, gaming, and other related technologies in the United States and internationally.What are the underlying business or industry changes driving this perspective?

HP's focus on developing AI-powered PCs and integrating advanced software capabilities could drive future revenue growth, especially in the commercial segment. However, if this shift fails to significantly differentiate their product line, these investments might not generate the expected revenue uplift, suggesting lower growth projections in this area.
The strategic acquisition of assets from Humane aims to enhance HP's AI capabilities across devices. While this could potentially improve product offerings and margins if integration is successful, any delays or mishandling of the transition might lead to underwhelming earnings figures.
Realignment of key growth areas, excluding gaming, to focus on the Future of Work might improve HP's margins if the strategy aligns well with market demand. However, if consumer interest in gaming remains strong, this could represent a missed revenue opportunity, impacting projections negatively.
Tariff increases on Chinese products and potential geopolitical factors are accounted for, with HP strategizing to mitigate these with supply chain diversification and cost efficiency. If these measures are less effective than anticipated, the additional costs could compress margins more severely than forecasted.
Incremental structural cost savings are expected to bolster margins and support growth investments. Should these savings not materialize at the planned scale or pace, the expected EPS growth may not meet current forecasts, leading to downward adjustments in estimated future earnings.

HP Future Earnings and Revenue Growth

Assumptions

How have these above catalysts been quantified?

This narrative explores a more pessimistic perspective on HP compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
The bearish analysts are assuming HP's revenue will decrease by 1.1% annually over the next 3 years.
The bearish analysts assume that profit margins will shrink from 4.5% today to 4.4% in 3 years time.
The bearish analysts expect earnings to reach $2.4 billion (and earnings per share of $2.78) by about May 2029, down from $2.5 billion today. However, there is some disagreement amongst the analysts with the more bullish ones expecting earnings as high as $3.2 billion.
In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 7.4x on those 2029 earnings, down from 7.9x today. This future PE is lower than the current PE for the US Tech industry at 43.0x.
The bearish analysts expect the number of shares outstanding to decline by 2.63% per year for the next 3 years.
To value all of this in today's terms, we will use a discount rate of 9.8%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

HP faces competitive pressure in both the Print and Personal Systems segments, particularly with pricing in China being very competitive. This could negatively affect their revenue and profit margins.
The imposition of tariffs, especially those related to China, could lead to increased costs for HP, impacting their net profit margins if not successfully mitigated.
HP’s consumer segment underperformed with revenue down 7% year-over-year, highlighting risks to revenue growth particularly if consumer demand remains weak or declines further.
The reliance on ongoing adjustments in the global supply chain and external geopolitical factors to mitigate risks could affect operational efficiency and future earnings if disruptions occur.
With rising commodity costs negatively impacting gross margins and the time required for cost reduction and pricing actions to fully offset these headwinds, there is a risk to achieving anticipated net earnings improvements.

Valuation

How have all the factors above been brought together to estimate a fair value?

The assumed bearish price target for HP is $16.0, which represents up to two standard deviations below the consensus price target of $19.43. This valuation is based on what can be assumed as the expectations of HP's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $26.4, and the most bearish reporting a price target of just $16.0.
In order for you to agree with the more bearish analyst cohort, you'd need to believe that by 2029, revenues will be $54.5 billion, earnings will come to $2.4 billion, and it would be trading on a PE ratio of 7.4x, assuming you use a discount rate of 9.8%.
Given the current share price of $21.67, the analyst price target of $16.0 is 35.4% lower.
We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.

Have other thoughts on HP?

Create your own narrative on this stock, and estimate its Fair Value using our Valuator tool.

Create Narrative

How well do narratives help inform your perspective?

Disclaimer

AnalystLowTarget is a tool utilizing a Large Language Model (LLM) that ingests data on consensus price targets, forecasted revenue and earnings figures, as well as the transcripts of earnings calls to produce qualitative analysis. The narratives produced by AnalystLowTarget are general in nature and are based solely on analyst data and publicly-available material published by the respective companies. These scenarios are not indicative of the company's future performance and are exploratory in nature. Simply Wall St has no position in the company(s) mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. The price targets and estimates used are consensus data, and do not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that AnalystLowTarget's analysis may not factor in the latest price-sensitive company announcements or qualitative material.

AI-Powered PCs And Future Of Work Will Shape Opportunity