HP reported record Q3 revenue and raised its full-year 2026 earnings and free cash flow forecasts, indicating strong overall performance. However, the stock fell due to investor concerns over shrinking Personal Systems margins driven by rising memory costs, which management expects to bottom in Q4.
HP Inc. (HPQ) announced strong third-quarter results, beating revenue and earnings estimates, and subsequently raised its fiscal year 2026 adjusted earnings and free cash flow outlook. This positive financial performance would typically lead to a stock increase. However, the stock declined significantly due to concerns over shrinking Personal Systems margins, primarily driven by rising memory costs and higher PC prices impacting demand. Management indicated that Q4 would likely mark the low point for these margins, with recovery expected in fiscal 2027 through product redesigns and revised supplier contracts. This creates a short-term negative sentiment due to margin compression, but a potential long-term opportunity if HP successfully navigates cost pressures and capitalizes on the growing AI PC market, which now accounts for a significant portion of its shipments.