HP (HPQ) Stock Surges on Record Q2 Earnings: Is It Time to Invest?

Key Highlights

• HP’s second-quarter revenue reached $14.4 billion, representing a 9% year-over-year increase and surpassing Wall Street’s $14.07 billion projection.
• The company’s adjusted earnings per share of $0.86 significantly exceeded analyst consensus of $0.71–$0.72, fueled by robust demand for AI-enabled PCs.
• The proportion of AI-capable computers in HP’s product portfolio climbed to 44% from 35% in the previous quarter, with management targeting 60–70% penetration within the coming fiscal year.
• Management reduced the upper bound of annual adjusted EPS projections by $0.10 to a range of $2.90–$3.10, attributing the adjustment to escalating memory component prices anticipated to culminate in Q4.
• While JPMorgan elevated its price objective to $26, Wall Street maintains a collective “Reduce” recommendation with an average target of $22.17.

HP delivered second-quarter fiscal results showing revenue of $14.4 billion, marking a 9% climb from the same period last year and topping analysts’ projections of $14.07 billion. The company’s adjusted earnings per share of $0.86 substantially outperformed the $0.72 consensus forecast. Shares surged as much as 15% in extended trading immediately following the announcement.

HP Inc., HPQ

The Personal Systems division demonstrated exceptional performance, generating $10.2 billion in quarterly revenue—a 13% year-over-year expansion. Enterprise PC sales increased 14%, while consumer PC revenue advanced 10%. Notably, overall PC shipment volumes declined 7%, indicating that revenue growth stemmed from elevated average selling prices rather than increased unit sales.

The Printing division maintained stability with $4.2 billion in revenue. However, operating profitability in this segment contracted to 18.3% compared to 19.2% in the year-ago period.

Demand for AI-enabled PCs emerged as a significant growth catalyst during the quarter. The percentage of AI-capable systems within HP’s PC portfolio expanded to 44% from just over 35% in the preceding quarter. Management anticipates this metric will reach 60–70% during the upcoming fiscal year and exceed 70% by fiscal 2028.

Under GAAP accounting standards, diluted earnings per share of $0.49 came in below the company’s previously issued guidance range of $0.52 to $0.58. This variance was primarily attributable to $365 million in restructuring expenses and other one-time charges.

Memory Chip Supply Constraints Pose Challenges

The organization is contending with tightening memory chip availability, as data center requirements drive component pricing upward. Chief Financial Officer Karen Parkhill detailed multiple mitigation strategies HP is implementing: redesigning product configurations, procuring alternative lower-cost components, prioritizing higher-margin product lines, and implementing price adjustments that reflect elevated commodity expenses.

Management anticipates memory chip constraints will pressure operating profitability to its lowest point in the fourth quarter, with conditions expected to stabilize as fiscal 2027 approaches.

Annual Outlook Revised Downward

HP adjusted its full-year adjusted EPS guidance to $2.90–$3.10, lowering the upper boundary by $0.10. Under GAAP measures, annual earnings guidance dropped to $2.15–$2.45 per share from the prior range of $2.47–$2.77. The company also forecasts full-year free cash flow between $2.8 billion and $3.0 billion.

For the third quarter, HP projects adjusted EPS in the range of $0.61–$0.71.

Multiple Wall Street firms revised their valuation targets following the earnings release. JPMorgan increased its price objective from $22 to $26 while keeping a neutral stance. TD Cowen similarly adjusted its target to $26 with a hold rating. Barclays set a $19 target with an underweight position, and Wells Fargo established a $20 target, also with an underweight rating.

Despite the earnings outperformance, analyst sentiment remains cautious with a consensus “Reduce” rating and an average price target of $22.17, based on MarketBeat aggregated data. The stock currently receives two strong buy ratings, ten hold recommendations, and five sell ratings.

HPQ closed at $24.92 prior to the earnings announcement, within its 12-month trading range of $17.56 to $29.55.

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