HPQ Gaps Through Its Entire Wednesday Range After Memory Costs Cut Personal Systems Margin To 4.6%

HP Inc. beat consensus by 26%, raised full-year earnings guidance, raised free cash flow guidance, and lost nearly 9% of its market value in the overnight session.

The stock closed Wednesday at $30.52, up 3.4% on the day after opening at $29.42 and trading a $29.19 to $30.83 range on volume of 22.8 million shares against a 17.2 million average. Within four hours of the 16:15 ET release it printed $27.87, down $2.65 or 8.68%, with the bid at $27.67 and the ask at $27.73. Premarket Thursday held around a 9% decline.

The headline numbers do not explain that reaction. Third-quarter net revenue came in at $15.677 billion, up 12.5% year over year and 10.9% in constant currency, against a consensus near $14.34 billion — a beat of roughly $1.3 billion, or 9.3%. Non-GAAP diluted EPS reached $0.83 against a $0.66 consensus and against the company's own guidance range of $0.61 to $0.71. GAAP EPS was $0.71 against a $0.47 to $0.63 outlook.

Full-year fiscal 2026 non-GAAP EPS guidance moved up to $3.19 to $3.29 from $2.90 to $3.10, with a $3.24 midpoint against a $3.03 consensus. Free cash flow guidance rose to $3.0 to $3.2 billion from $2.8 to $3.0 billion. The complete release is filed through HP's investor relations site.

Three things underneath those figures caused the selling. Total Personal Systems units fell 16% year over year while segment revenue rose 18% — every dollar of growth came from price and mix rather than volume. Gross margin compressed to 18.79% from 20.93% in the prior quarter, a 214 basis point sequential collapse driven by memory and commodity costs. And the fourth-quarter non-GAAP EPS guide of $0.69 to $0.79 sits below the $0.83 just delivered.

Add an 18.5% one-month gain and roughly 31% year-to-date advance heading into the print, and the setup was a stock priced for a clean quarter that got a good quarter with a deteriorating cost structure inside it.

The $15.68 Billion Quarter: A $1.3 Billion Revenue Beat

The top line was the strongest HP has produced in years and it was not close to consensus.

Total net revenue of $15.677 billion beat estimates clustered between $14.34 billion and $14.60 billion. Products contributed $14.825 billion and services $852 million. Sequentially, revenue rose 8.8% from the $14.408 billion posted in the April quarter. Year over year, the gain was 12.5% — the ninth consecutive quarter of top-line growth.

Nine-month revenue reached $44.523 billion against $40.656 billion a year earlier, up 10%.

The composition was entirely Personal Systems. That segment generated $11.767 billion, up 18% year over year and 15% sequentially. Commercial PS alone contributed $8.579 billion, up 22% year over year and 11% quarter over quarter. Consumer PS added $3.188 billion, up 10% annually and 29% sequentially.

Printing went the other direction at $3.912 billion, down 2% year over year and down 7% sequentially, with constant-currency revenue off 4%.

That gives a mix of roughly 75% Personal Systems and 25% Printing — the highest PS weighting in the modern history of the company, and a structural problem given that Printing runs an 18.1% operating margin against Personal Systems at 4.6%.

The management framing focused on the supply side. Interim CEO Bruce Broussard stated that HP increased both total sales and share in premium products, attracting new customers through innovations in WXP, Print, workstations and AI PCs, and that the strategy to address environmental constraints produced meaningful improvements in memory supply and higher fulfillment rates.

That last clause is the tell. Higher fulfillment rates means HP was able to ship backlog it had previously been unable to build — a one-time catch-up effect rather than an ongoing demand signal.

CFO Karen Parkhill described record third-quarter revenue with EPS above the top of the guidance range and pointed to three solid quarters demonstrating the ability to navigate a challenging cost environment.

The word "challenging" is doing a lot of work in a quarter where gross margin fell 214 basis points sequentially.

Units Down 16% While Revenue Rose 18%

This is the number that broke the stock, and it is unambiguous.

Personal Systems total units declined 16% year over year. Consumer PS units fell 19%. Commercial PS units fell 14%. Against that, Personal Systems revenue rose 18%.

The arithmetic implies average selling prices rose roughly 40% year over year. That is an extraordinary figure and it is the entire growth story.

The drivers are real. AI PCs carry materially higher price points and reached approximately 44% of shipments in the April quarter, with management expecting 50% of shipment mix by the end of fiscal 2026 and 60% to 70% in fiscal 2027. Premium products, workstations and higher-margin attached services all skew the mix upward. Deliberate price increases were implemented to offset component inflation.

Printing showed the same pattern in miniature. Total hardware units fell 7%, with Consumer Printing units down 9% and Commercial Printing units down 2%, while revenue declined only 2%.

The problem is that price and mix are finite levers and volume is the base they multiply against. A business shipping 16% fewer units is losing installed-base share regardless of what the revenue line says, and installed base is what drives the attached services and supplies revenue that carries the margin.

The industry backdrop makes it worse rather than better. HP guided PC unit total addressable market to decline at a high-teens rate through the second half of fiscal 2026. That is not company-specific share loss — it is the whole market contracting, with HP shipping into it at higher prices.

The bull framing is that this is deliberate: exit the low-margin volume, keep the premium customer, protect operating profit. The bear framing is that the 40% ASP increase is a pass-through of memory cost inflation that customers have accepted once and will resist if it repeats.

Nine-month Personal Systems revenue of $32.231 billion against $28.179 billion — up 14% — was delivered on a shrinking unit base for three consecutive quarters.

Gross Margin At 18.79%: A 214-Basis-Point Sequential Collapse

The consolidated margin math is where the quarter falls apart, and it is not visible in any of the headline metrics.

Gross profit came in at $2.945 billion on $15.677 billion of revenue — a gross margin of 18.79%. In the April quarter, HP produced $3.016 billion of gross profit on $14.408 billion, a 20.93% margin. A year earlier, $2.851 billion on $13.932 billion, a 20.46% margin.

So revenue rose $1.269 billion sequentially and gross profit fell $71 million. The incremental $1.269 billion of revenue carried a negative gross margin contribution.

That is the single most important line in the release and it did not appear in the summary table.

The GAAP operating margin looks better at 5.7%, up from 5.1% a year earlier and 4.2% in the April quarter, but that improvement is entirely a function of lower restructuring charges — $48 million this quarter against $365 million in the April quarter and $110 million a year ago. Strip that out and the picture reverses.

Non-GAAP operating margin, which excludes restructuring, tells the truth: 6.5% against 7.1% a year earlier and 7.5% in the April quarter. That is 60 basis points of year-over-year compression and 100 basis points sequentially.

Non-GAAP earnings from operations came in at $1.021 billion against $1.075 billion in the April quarter and $995 million a year ago — flat to down on 12.5% revenue growth.

Total segment operating margin fell to 7.8% from 8.8% sequentially and 8.6% year over year.

Operating expenses were controlled. R&D fell to $389 million from $432 million sequentially and $406 million a year ago. SG&A rose to $1.537 billion from $1.514 billion. Amortization of intangibles dropped to $75 million from $159 million a year earlier.

The cost problem is entirely above the gross profit line, and it has a name: memory.

Personal Systems At 4.6%: Memory Costs Beat The Price Hikes

The segment carrying 75% of revenue is now running a 4.6% operating margin.

Personal Systems operating margin fell to 4.6% from 5.2% in the April quarter and 5.4% a year earlier — down 60 basis points sequentially and 80 basis points annually. Segment earnings before taxes came in at $537 million against $530 million sequentially and $541 million a year earlier.

Revenue grew $1.554 billion sequentially. Segment profit grew $7 million.

The stated cause is direct: rising commodity and memory costs outpaced the price increases HP implemented to offset them. Management had flagged the risk explicitly in May, warning that memory and storage costs had increased sequentially and that inflationary pressures would continue through the second half of fiscal 2026 alongside higher energy-related input costs.

HP has been executing a specific mitigation playbook — product redesigns, lower-cost component sourcing, targeted price increases, sourcing optimization and broader productivity initiatives, plus a target of roughly $1 billion in annualized cost savings by fiscal 2028 through AI-driven transformation.

The third quarter demonstrates that the playbook is not currently outrunning the input cost curve.

Nine-month Personal Systems margin sits at 4.9% against 5.2% a year earlier, on revenue up 14%. The segment is growing and getting less profitable at the same time.

The forward risk is that the memory environment gets worse before it gets better. The largest buyer of memory in the world just told the market it is securing supply aggressively — Nvidia's supply commitments more than doubled from $119 billion to $279 billion in a single quarter, driven primarily by memory procurement, and the company guided its own gross margin down from 75.0% to a 71% to 72% trough in the January quarter specifically on memory pricing.

When the company with the highest gross margin in the semiconductor industry says memory is compressing its margin by 300 to 400 basis points, a PC assembler running 4.6% has very little cushion.

That is the structural read-through that took HPQ down 9% on a beat.

Printing At 18.1% And The Tank Printer Share Gain

The smaller segment is the profitable one and it is holding up better than the revenue line suggests.

Printing generated $3.912 billion, down 2% year over year and 7% sequentially, with an 18.1% operating margin against 18.3% in the April quarter and 17.0% a year earlier. That is 110 basis points of year-over-year margin expansion on declining revenue — the opposite of what Personal Systems delivered.

Segment earnings before taxes reached $709 million against $681 million a year ago, on $90 million less revenue.

The sub-line detail: Supplies at $2.536 billion, down 3% year over year and 8% sequentially. Commercial Printing at $1.101 billion, down 1% annually and 6% sequentially. Consumer Printing at $275 million, down 2% annually but up 1% sequentially.

Supplies is the profit engine and the 8% sequential decline is the concern. Supplies revenue tracks installed base and utilization, and hardware units falling 7% year over year means the base is shrinking.

The offset management is pursuing is share in the tank printer category. HP gained 4 points of share in the tank market with 42% unit growth — a segment that trades lower hardware margin for a different consumables model and skews toward emerging markets.

Parkhill stated that the company remains comfortable with the 16% to 19% long-term operating profit range for Printing, and that the range holds for fiscal 2027. Where results land within it varies quarter to quarter based on seasonality and the volume of profitable units placed in a competitive environment. The stated priorities: share gains in tank printers, expansion in consumer subscriptions, strengthening the office position with AI-enabled innovation, sustaining momentum in industrial graphics, and cost discipline.

At 18.1%, Printing sits in the upper half of that range, which is a genuine achievement given rising resin and transportation costs and the placement dynamics that typically weigh on third-quarter profitability.

Printing is one quarter of revenue and roughly 58% of segment operating profit. That concentration is what the multiple is actually paying for.

The Guidance Raise That Was Mostly Backward-Looking

The full-year raise looks larger than it is once you work through the arithmetic.

Prior fiscal 2026 non-GAAP EPS guidance ran $2.90 to $3.10, a $3.00 midpoint. New guidance runs $3.19 to $3.29, a $3.24 midpoint. That is a $0.24 increase.

The third quarter alone beat its own guidance midpoint by $0.17 — $0.83 delivered against a $0.66 midpoint of the $0.61 to $0.71 range.

Which means roughly $0.07 of the $0.24 raise reflects an improved forward view. The remaining $0.17 is simply the quarter that already happened flowing through the annual number.

The fourth-quarter guide confirms it. Non-GAAP diluted EPS is guided to $0.69 to $0.79, a $0.74 midpoint — $0.09 below the $0.83 just reported. GAAP EPS is guided to $0.74 to $0.84, which for the first time in this cycle sits above the non-GAAP range because the non-GAAP adjustment is a negative $(0.05) per share.

Nine-month non-GAAP EPS stands at $2.50 against $2.19 a year earlier. The full-year midpoint of $3.24 implies exactly the $0.74 fourth-quarter figure.

Free cash flow guidance moved to $3.0 to $3.2 billion from $2.8 to $3.0 billion — a genuine $200 million raise at both ends, and the more credible of the two upgrades given nine-month operating cash flow of $3.044 billion against $2.073 billion a year ago.

GAAP full-year EPS guidance rose to $2.52 to $2.62, with non-GAAP adjustments of $0.67 per diluted share primarily covering restructuring, acquisition and divestiture charges, intangible amortization, retirement-related credits, litigation items and associated tax effects.

A company raising the annual number while guiding the next quarter below the one just delivered is telling you the beat was not repeatable. The market read it correctly.

The $0.19 Tariff Refund Sitting Inside The Numbers

Every EPS figure in this release requires an adjustment that management disclosed clearly and that changes the picture materially.

Third-quarter GAAP and non-GAAP EPS both included an $0.11 favorable impact from tariff refunds. Fourth-quarter guidance includes an estimated $0.08 favorable impact. Full-year guidance includes $0.19.

Strip them out and the underlying trajectory looks different.

Third-quarter non-GAAP EPS excluding tariff refunds was approximately $0.72 — against a $0.66 consensus that presumably did not model the refund. The beat shrinks from $0.17 to roughly $0.06.

Fourth-quarter guidance excluding the $0.08 becomes $0.61 to $0.71, a $0.66 midpoint. Against an ex-refund third quarter of $0.72, that is an 8.3% sequential decline in underlying earnings power heading into what is seasonally the strongest quarter of HP's fiscal year.

Full-year guidance excluding $0.19 becomes $3.00 to $3.10 — exactly the prior guidance range. On an underlying basis, HP did not raise its earnings outlook at all. It disclosed a tariff refund and passed it through.

The refunds also flowed into the gross profit line. A prior quarter's gross profit rate included a $34 million tariff refund benefit at a competing retailer, and the same mechanism applies here — these are recoveries of duties previously paid, non-recurring by definition and dependent on trade policy outcomes outside the company's control.

None of this is hidden. HP disclosed the amounts in the first three bullets of the release and in every guidance line. But the headline EPS comparisons circulating on the beat — $0.83 against $0.66 — do not carry the adjustment, and the market did.

A $0.06 underlying beat on a stock that had run 18.5% in a month is not a beat that holds a 3.4% pre-print gain.

Cash: $1.6 Billion Free Cash Flow And Buybacks At $24.59

The cash generation is the strongest part of this business and it is where the valuation case lives.

Third-quarter net cash provided by operating activities came in at $1.735 billion, up 4% from $1.661 billion. Free cash flow reached $1.571 billion against $1.470 billion, up 7% — calculated as operating cash flow adjusted for $20 million of net investment in leases from integrated financing and $187 million of net investment in property, plant, equipment and purchased intangibles.

Capital intensity is remarkably low. HP spent $187 million on capex against $15.677 billion of revenue — 1.2%. Nine-month capex of $590 million is down from $700 million a year earlier.

Nine-month operating cash flow of $3.044 billion against $2.073 billion is a 47% increase, and it is what supports the raised $3.0 to $3.2 billion full-year free cash flow guidance.

Capital returns totaled $0.6 billion in the quarter: $274 million in dividends at $0.30 per share and $300 million repurchasing approximately 12.2 million shares in the open market.

That buyback price works out to roughly $24.59 per share — well below the $30.52 Wednesday close and below the $27.87 overnight print. Management bought its own stock at a level the market has not seen since earlier in the quarter, which is either good timing or an indication of where the shares traded during the period.

Nine-month repurchases total $725 million against $350 million a year earlier, with dividends of $825 million. Diluted share count fell to 927 million from 954 million year over year — a 2.8% reduction.

Gross cash exited the quarter at $4.2 billion. Long-term debt declined to $7.868 billion from $8.821 billion at fiscal year-end, with $770 million of debt repaid across nine months.

The commitment has been to return roughly 100% of free cash flow to shareholders while gross leverage stays under two times. At $3.0 to $3.2 billion of guided free cash flow against a market capitalization near $25.8 billion at $27.87, that is a 11.6% to 12.4% total return yield on capital allocation alone.

The Balance Sheet: $10.3 Billion Inventory And A Stockholders' Deficit

The working capital movements this quarter deserve attention because they explain how the cash flow was produced.

Inventory ended at $10.322 billion, up from $8.512 billion at October 31 — a $1.81 billion build across nine months. Sequentially it held flat at 73 days. Accounts receivable reached $7.168 billion from $5.692 billion, extending 3 days quarter over quarter to 41 days.

Accounts payable ended at $21.383 billion against $18.051 billion at fiscal year-end, flat sequentially at 151 days.

That payable balance is the mechanism. HP is running 151 days of payables against 73 days of inventory and 41 days of receivables — a negative cash conversion cycle of roughly 37 days. Suppliers are financing the working capital build.

In the quarter itself, receivables consumed $1.065 billion of cash and inventory $1.167 billion, while accounts payable contributed $2.186 billion. The payable increase alone covered both.

The inventory build in an environment of rising memory prices is defensible — securing components ahead of further increases is exactly what a manufacturer should do when input costs are inflating. It also carries risk if PC demand contracts at the high-teens rate the company itself is guiding for the second half.

Total assets stand at $45.701 billion against $41.769 billion at fiscal year-end.

Stockholders' deficit improved to negative $92 million from negative $346 million. HP has operated with negative book equity for years as a result of sustained buybacks exceeding retained earnings, which makes conventional balance-sheet ratios unusable and forces the valuation onto cash flow.

Notes payable and short-term borrowings rose to $1.292 billion from $845 million. Long-term debt fell to $7.868 billion. Net debt against $4.2 billion of gross cash sits near $5.0 billion, or roughly 1.2 times guided free cash flow — comfortable relative to the two-times leverage ceiling management set.

Valuation At $27.87: 8.6x Forward, 4.3% Yield, 12% Free Cash Flow Yield

The multiple was cheap before the print and the gap made it cheaper.

At $27.87 on 927 million diluted shares, market capitalization sits near $25.84 billion. Against full-year non-GAAP EPS guidance of $3.19 to $3.29, that is 8.5 to 8.7 times current-year earnings. Excluding the $0.19 tariff refund benefit, the underlying $3.00 to $3.10 range gives 9.0 to 9.3 times.

Trailing EPS of $2.79 puts the trailing P/E at 10.0 times, down from 10.94 at the $30.52 close. Price-to-sales, against roughly $60 billion of annualized revenue, sits near 0.43.

The dividend is the anchor. HP pays $0.30 quarterly, $1.20 annualized, yielding 4.31% at $27.87 against 4.07% at the prior close. The ex-dividend date is September 9, 2026. That dividend consumes roughly $1.1 billion of the $3.0 to $3.2 billion free cash flow, leaving substantial room for continued repurchases.

Free cash flow yield at the midpoint of guidance is 12.0%.

The comparison against the sister company is instructive on income metrics. HPQ's yield and single-digit forward multiple deliver more current income and a wider valuation discount than Hewlett Packard Enterprise, which trades at a richer multiple after absorbing the Juniper acquisition.

The bear case for the multiple is that it is cheap for a reason. Revenue growth of 12.5% was delivered on units down 16%. Gross margin compressed 214 basis points sequentially. The largest segment runs a 4.6% operating margin. Leadership is unresolved — Broussard has been interim CEO since February, when Enrique Lores stepped down, with the board's search committee and retained executive search firm still working. The PC total addressable market is guided down at a high-teens rate.

The bull case is that 8.6 times forward earnings with a 4.3% yield and a 12% free cash flow yield prices in a considerable amount of that already, and that the AI PC refresh cycle — 50% of shipment mix by fiscal year-end, 60% to 70% next year — is a multi-year volume catalyst that has not yet arrived.

The 52-week range from $17.56 to $32.19 shows the market has valued this business between roughly 5.5 and 10 times forward earnings inside twelve months.

The Memory Squeeze And Who Is On The Other Side Of It

HP's problem is a specific commodity in a specific shortage, and the shortage has an identifiable cause.

Memory and storage costs have been rising sequentially since at least the January quarter, when management first said it anticipated results closer to the low end of its range in a dynamic environment marked by increasing memory costs. By May, the language had hardened to inflationary pressures continuing through the second half of fiscal 2026 alongside higher energy-related input costs. By this quarter, those costs outpaced the price increases designed to offset them.

The driver is artificial intelligence infrastructure competing for the same supply. Nvidia disclosed supply commitments rising from $119 billion to $279 billion in a single quarter, driven primarily by memory procurement, and stated directly that memory scarcity is being driven in large part by the AI buildout itself. Combined hyperscaler capital expenditure reached $166.0 billion in the June quarter, up 87% year over year.

That demand is price-insensitive in a way PC demand is not. A data center operator buying high-bandwidth memory for accelerator deployments can absorb a 30% price increase against the revenue those accelerators generate. A notebook manufacturer running a 4.6% segment margin cannot.

HP has flagged the same dynamic on energy. Management expects inflationary pressures beyond memory and storage, including higher oil prices and related transportation costs. Printing has faced rising resin and transportation costs specifically.

The beneficiaries of the same trade are the memory producers — Micron, Western Digital, Seagate, Sandisk — whose margins expand by exactly the mechanism compressing HP's. Micron rose 4.5% in premarket Thursday alongside the broader semiconductor complex, which gained 3% to 3.5% on the Nvidia guide.

The one favorable development in the quarter was supply availability rather than price. Broussard noted that the strategy to address environmental constraints led to meaningful improvements in memory supply and higher fulfillment rates. HP can get the components. It is paying more for them.

Relief requires either memory capacity additions catching up with AI demand, which is a 2027 event on current capital expenditure schedules, or PC pricing power sufficient to pass through a second round of increases.

Neither is in the fourth-quarter guide.

Technical Structure: $32.19 Above, $27.87 Now, $24.59 Beneath

The chart heading into this print was as strong as it has been in years, and the gap has broken it.

HPQ closed Wednesday at $30.52 having gained 3.4% on the session and roughly 18.5% across the prior month. The 52-week range runs $17.56 to $32.19. Wednesday's close sat 5.2% below the high and 73.8% above the low, with year-to-date performance near 31% against an S&P 500 up roughly 13% over the same span.

The overnight print at $27.87 sits 13.4% below the 52-week high and 8.7% below Wednesday's close. It also sits below the $29.19 low of Wednesday's session and below the $29.42 open — a full gap through the prior day's entire range.

The reference levels beneath current price are specific. The $24.59 average repurchase price for the 12.2 million shares HP bought during the quarter marks where management was willing to commit $300 million. Below that, the $17.56 low from earlier in the cycle is 37% away.

Above, the immediate resistance is Wednesday's $29.19 low, then the $30.52 close and $30.83 intraday high, then the $32.19 record for the trailing year.

Volume context matters for how this resolves. Wednesday's 22.8 million shares against a 17.2 million average was already elevated on pre-print positioning. A gap of this size typically produces two to three sessions of outsized turnover before a level establishes.

Beta sits at 1.19 — modestly more volatile than the market, which understates the single-stock event risk this name carries around earnings.

Institutional positioning has been actively contested. Norges Bank removed 4,311,087 shares in the second quarter, a 64.3% reduction worth an estimated $94.6 million. California State Teachers' Retirement System added 33,984,527 shares, a 2,151.8% increase worth an estimated $745.6 million. Across the quarter, 566 institutional holders added and 537 reduced.

Unusual put activity was flagged ahead of the print, which is consistent with the size of the move that followed.

What Would Reverse This And What Would Extend It

The upside case requires the fourth quarter to demonstrate that the margin compression has bottomed.

Specifically: Personal Systems operating margin stabilizing at or above 4.6% rather than continuing to fall, gross margin recovering from 18.79% toward the 20% level held in the April quarter, and the fourth-quarter non-GAAP EPS landing at the $0.79 top of the guide rather than the $0.69 bottom. Add the AI PC mix reaching the guided 50% of shipments by fiscal year-end and the $1 billion annualized cost savings program showing measurable progress toward its fiscal 2028 target.

At $27.87, the stock trades 8.6 times the midpoint of raised guidance with a 4.31% dividend yield and a 12% free cash flow yield. A single quarter of stabilized margin against those numbers reprices the shares toward the $30.52 close and the $32.19 high.

The structural support is genuine. Free cash flow guidance was raised $200 million at both ends. Nine-month operating cash flow rose 47%. The company bought 12.2 million shares at $24.59 during the quarter and has retired 27 million shares year over year. Printing holds an 18.1% margin inside its 16% to 19% long-term range with 4 points of tank share gained and 42% unit growth in that category.

The downside case is that the cost curve has not turned. Memory prices continue rising as AI infrastructure demand absorbs supply, with the largest buyer having just doubled its own commitments to $279 billion. PC unit total addressable market declines at the guided high-teens rate. The 40% ASP increase that carried this quarter meets customer resistance in the next one. Personal Systems margin falls below 4.5% and Printing supplies revenue, already down 8% sequentially, continues eroding as the installed hardware base shrinks 7% annually.

Leadership is the unquantifiable variable. HP has been running under an interim CEO since February with no announced successor. A permanent appointment brings strategic clarity and the possibility of a fresh restructuring charge; continued vacancy sustains the discount.

The tariff refunds — $0.11 this quarter, $0.08 guided, $0.19 for the year — do not recur into fiscal 2027 unless trade policy delivers them again.

Forecast And Verdict: $29.19 Is The Gate, $24.59 Is The Floor

HP delivered its best revenue quarter on record and its worst gross margin quarter in years, and the market chose the second one.

The bull case is arithmetic and it is not weak. Revenue of $15.677 billion beat consensus by roughly $1.3 billion and rose 12.5%. Non-GAAP EPS of $0.83 cleared the top of guidance and beat consensus by $0.17. Full-year non-GAAP EPS guidance rose to $3.19 to $3.29 against a $3.03 consensus. Free cash flow guidance rose $200 million at both ends to $3.0 to $3.2 billion. The quarter produced $1.571 billion of free cash flow on $187 million of capex. Printing held an 18.1% margin and expanded it 110 basis points year over year. At $27.87, the stock trades 8.6 times guidance with a 4.31% yield and a 12% free cash flow yield, and management bought 12.2 million shares at $24.59 during the period.

The bear case is that none of the growth was volume. Personal Systems units fell 16% while revenue rose 18%. Gross margin collapsed from 20.93% to 18.79% sequentially — $1.269 billion of incremental revenue produced $71 million less gross profit. Personal Systems operating margin fell to 4.6% from 5.4%. Non-GAAP operating margin fell to 6.5% from 7.5% sequentially. The fourth-quarter EPS guide of $0.69 to $0.79 sits below the $0.83 delivered. Every EPS figure carries a tariff refund — $0.11 this quarter, $0.19 for the year — and stripping it out leaves full-year guidance exactly where it started at $3.00 to $3.10. The memory cost pressure driving all of it is being caused by an AI buildout that just committed $279 billion to securing the same supply.

The levels: $29.19, Wednesday's session low, is the first genuine gate; reclaiming it opens $30.52 and the $32.19 high. Failure keeps the stock in the $27 to $29 band. Below $27.67, the next reference is the $24.59 average buyback price where management put $300 million to work, and beneath that the chart is open toward the low $20s.

Call it cheap and deteriorating. Eight and a half times earnings with a 4.3% yield prices in real damage, but the fourth-quarter guide says the damage has one more quarter to run.

That's TradingNEWS