Last Update 08 Jul 26
Fair value Increased 13%HPQ: Rising Memory Costs Will Erode Margins Despite Recent EPS Beat
HP Inc.'s fair value estimate edges up to $18 from $16 as analysts lift price targets on the back of stronger than expected Q2 execution, while still flagging headwinds from rising memory costs, potential PC demand pull forward, and ongoing margin pressure.
Analyst Commentary
Recent research on HP Inc. highlights a split view. Price targets are broadly higher following the fiscal Q2 report, yet several firms remain cautious on the durability of earnings, the impact of higher memory costs, and how much PC demand has been pulled forward into the first half of the year.
Neutral rated analysts lifting targets into the low to mid US$20s point to better than expected input cost management, stronger Personal Systems margins, and resilient execution in a complex operating backdrop. They also flag that HP is handling a challenging commodity environment, even as multiple firms expect margins to come under pressure in the second half of the fiscal year.
Underweight and Underperform ratings show that not everyone is convinced. Some bearish analysts are focused on HP's decision to lower its full year earnings outlook, unchanged free cash flow guidance of US$2.8b to US$3b, and internal expectations for a high teens percent decline in PC TAM in the second half of 2026. For these analysts, the higher share price and raised targets simply reflect better near term execution rather than a clear improvement in medium term growth visibility.
Goldman Sachs and JPMorgan are among the large firms keeping more balanced stances. Their higher targets acknowledge solid Q2 delivery, improved cost control, and what they describe as a more resilient spending backdrop for IT hardware, while still underscoring risks tied to pricing actions, customer price sensitivity, and the eventual unwind of demand that has been brought forward.
For investors, the key takeaway is that while HP Inc. has won credit for execution, there is still debate about how sustainable current earnings and margins will be if PC volumes soften further and memory costs stay elevated.
Bearish Takeaways
- Bearish analysts argue that HP's use of price increases and portfolio mix shifts may have limited headroom, with questions around customer elasticity, potential volume pushback, and the effect on longer term growth.
- Several firms with Underweight or Underperform ratings see margin risk as memory costs rise, PC demand is pulled forward into the first half, and the second half of 2026 absorbs lower volumes alongside higher component pricing.
- Some research points to HP's leadership transition and unchanged free cash flow guidance of US$2.8b to US$3b as signs that management is prioritizing stability over aggressive expansion, which could cap upside if growth expectations reset lower.
- Bearish analysts also highlight that higher valuation multiples, supported by short covering in IT hardware and stronger recent prints, may be vulnerable if earnings estimates for HP Inc. are revised down on weaker second half margins or softer PC TAM.
What’s in the News for HP
- HP Inc. enters a partnership with OpenAI to deploy the Frontier enterprise AI platform across operations in 180 countries, with plans for AI agents in customer support, software development, and telemetry insights, aiming to support transformation and growth initiatives (source: company announcements, OpenAI partnership coverage).
- Goldman Sachs raises its HP price target from US$16 to US$19 after Q2 fiscal 2026 EPS of US$0.86 and revenue of US$14.4b, while keeping a Sell rating and pointing to risks around slower PC sales growth, margin pressure, and leadership transitions. Bank of America also lifts its target but maintains an Underperform rating (source: Goldman Sachs and Bank of America research summaries).
- HP updates fiscal 2026 guidance, estimating GAAP diluted EPS of US$0.47 to US$0.63 for Q3 and US$2.15 to US$2.45 for the full year (source: company guidance).
- HP continues capital returns, repurchasing 5,250,000 shares for US$100.01m between February 1 and April 30, 2026, bringing total buybacks under the June 20, 2018 program to 752,578,104 shares, or 61.99%, at an aggregate cost of US$19,612.57m (source: buyback update filing).
- HP’s board amends company bylaws to redefine “competitor” for director qualification purposes as a principal competitor of HP, as determined by the board, with changes effective June 24, 2026 (source: Form 8-K bylaw amendments disclosure).
Valuation Changes for HP
- Fair Value: HP Inc.'s fair value estimate has risen modestly from $16.00 to $18.00.
- Discount Rate: The discount rate assumption has edged higher from 9.80% to 9.97%, indicating a slightly higher required return in the model.
- Revenue Growth: The long term revenue growth assumption now reflects a slightly larger expected decline, shifting from a 1.06% fall to a 1.26% fall.
- Net Profit Margin: The modeled net profit margin has been trimmed from 4.43% to 4.18%, implying slightly lower expected profitability on future sales for HP Inc.
- Future P/E: The assumed future P/E multiple has been raised from 7.41x to 8.87x, indicating a higher valuation multiple applied to HP Inc.'s projected earnings.
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.
- 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 1.3% annually over the next 3 years.
- The bearish analysts assume that profit margins will shrink from 4.4% today to 4.2% in 3 years time.
- The bearish analysts expect earnings to reach $2.3 billion (and earnings per share of $2.67) by about July 2029, down from $2.6 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 8.9x on those 2029 earnings, up from 8.2x today. This future PE is lower than the current PE for the US Tech industry at 40.0x.
- The bearish analysts expect the number of shares outstanding to decline by 2.16% per year for the next 3 years.
- To value all of this in today's terms, we will use a discount rate of 9.97%, 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 $18.0, which represents up to two standard deviations below the consensus price target of $22.91. 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 $29.6, and the most bearish reporting a price target of just $18.0.
- In order for you to agree with the more bearish analyst cohort, you'd need to believe that by 2029, revenues will be $55.3 billion, earnings will come to $2.3 billion, and it would be trading on a PE ratio of 8.9x, assuming you use a discount rate of 10.0%.
- Given the current share price of $22.96, the analyst price target of $18.0 is 27.6% 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.
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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.
