You would think a company raising its profit forecast would get a pat on the back from investors. Not HP. The issue is that the market is overlooking this quarter's results and focusing on future concerns.
Let's start with the good news. Full-year adjusted earnings are expected to land between $3.19 and $3.29 per share, well above the $3.05 projection. Those figures include tariff refunds.
The most recent quarter also performed well. Adjusted profit came in at 83 cents per share for the period ending July 31, which included an 11-cent gain from tariff refunds. Revenue for the quarter reached $15.7 billion, up roughly 13% from a year earlier.
Now the concerning part. This pricing power has been essential in offsetting higher component costs, but the question is whether it can continue.
Commercial model sales jumped 22%, which helped push PC revenue to $11.8 billion. Printer revenue slipped 2% to $3.9 billion.
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The core issue comes down to costs. HP has been dealing with a sharp increase in memory chip prices, which has forced the company to raise PC prices and redesign products. That strategy can work for a while, but it has limits. Redesigning hardware to use cheaper components takes time, and customers may balk at repeated price increases.
Morgan Stanley analysts said, "The PC and printer market is deteriorating underneath." They also noted that investors had already expected a strong July quarter. JPMorgan analysts add that shareholders will stay uneasy until HP provides its outlook for next year.
The stock closed at $30.52 before the drop, having been up 37% year-to-date. That run-up means investors had high expectations baked in, leaving little room for disappointment. For several consecutive quarters, the overall PC market has contracted, and although AI-powered laptops could eventually trigger a refresh cycle, that catalyst has not yet emerged. For now, HP is leaning heavily on pricing and cost discipline to protect margins, but the market is skeptical about how long that can offset falling unit volumes.
This pattern is a familiar one for the company. HP has historically relied on its highly profitable printer and ink business to soften the blow of PC volatility. That cushion has eroded as office printing sales stagnate and consumers shift away from single-use cartridges. In past downturns, the steady stream of supplies revenue helped bridge gaps, but now both hardware and supplies are under pressure, giving HP far less flexibility to absorb further demand shocks.
What it means for your portfolio: The market is treating HP's current strength as temporary. The real question is whether the company can keep raising prices without losing customers, and whether the memory chip cost pressure will ease. Until HP gives a clearer picture of next year, expect the stock to stay volatile.