Memory Price Hikes Pressure HP Margins, Q4 May Mark Bottom

HP Inc. shares fell on Thursday as investors weighed record quarterly revenue and stronger guidance against narrowing margins in the Personal Systems segment, rising memory costs, and higher PC prices.

Record Revenue, Raised Outlook

HP reported fiscal third-quarter revenue of $15.68 billion, up 12.5% year over year. The result surpassed the $14.34 billion consensus estimate.

Adjusted earnings per share came in at 83 cents, including an 11-cent benefit from tariff refunds. This beat the 69-cent expectation.

HP guided fourth-quarter adjusted EPS of 69 to 79 cents, above the 67-cent estimate. The company forecast GAAP EPS of 74 to 84 cents, versus expectations of 60 cents.

The company raised its fiscal 2026 adjusted EPS forecast to $3.19 to $3.29, up from a prior range of $2.90 to $3.10. Analysts had expected $3.04.

HP also lifted its GAAP EPS outlook to $2.52 to $2.62, from a previous $2.15 to $2.45. Free cash flow guidance was raised to $3.0 billion to $3.2 billion.

Memory Costs Squeeze PC Margins

On Wednesday's earnings call, investors focused on margin pressure in the Personal Systems segment.

CFO Karen Parkhill said HP still expects Q4 to be the segment's trough for margins. Higher-cost memory and component inventory will continue to flow through the income statement.

Management expects input costs to rise into fiscal 2027, though at a slowing pace. HP plans to support margin recovery through product redesigns, platform improvements, and revised supplier contracts.

Price increases are also pressuring demand. Some customers have delayed PC upgrades, though HP expects some demand to return as costs stabilize.

AI PC Momentum Builds

AI PCs accounted for 46% of HP's Q3 shipments. The company expects that to reach 50% by the end of fiscal 2026.

Personal Systems President Ketan Patel projects AI PCs will represent 60% to 70% of shipments in fiscal 2027 and exceed 70% in fiscal 2028.

Patel noted enterprises increasingly recognize the benefits of running AI locally, including lower cloud costs, stronger data privacy, and faster performance.

HP gained 2.6 percentage points of sequential share in the premium PC market and 1.8 points in the workstation market. Peripherals, collaboration products, and services now contribute roughly one-third of Personal Systems gross profit.

The company is also working with more than 150 software vendors to expand its AI application ecosystem.

Printing Revenue Declines

Printing revenue fell 2% year over year. Weak commercial office demand in North America and China, along with supply-side pressures in the Middle East, weighed on results.

One-time tariff refunds boosted the segment's performance. However, underlying margins remained in line with expectations. HP maintained its fiscal 2027 target for long-term printing operating margins of 16% to 19%.

HPQ price action: HP shares fell 10.52% to $27.32 in Thursday premarket trading.