HP Is Selling the Future. So Why Is the Stock Falling?

There’s something a little odd going on with HP Inc (HPQ) right now.

The company is pushing hard into AI-powered PCs and, by its own estimates, shipping a new device every few seconds. Demand looks real. Adoption is picking up. And yet, the stock has fallen roughly 27% over the past six months.

It feels like the market is reacting to a different story than the one the company is telling.

The Cost Problem No One Can Ignore

The issue comes down to costs, specifically memory.

For years, memory and storage made up around 15% to 18% of the cost of building a PC. That was manageable. Recently, though, that number has jumped dramatically, with management indicating it is now closer to 30% to 35% in some cases.

That kind of increase is hard to absorb, especially in a business where margins are already thin.
So even though HP is selling more premium, AI-enabled systems, the profitability of each unit is under pressure. Investors are not just looking at how many devices are being shipped. They are focused on how much money the company actually keeps from those sales.

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A Quarter That Looked Strong At First Glance

HP’s fiscal first quarter of 2026 seemed solid on the surface.

Revenue came in at $14.4 billion, up 6.9% year over year. The Personal Systems division grew even faster, with revenue rising 11%. AI PCs are gaining traction as well, now accounting for about 35% of total shipments.

Those are the kind of numbers that usually support a higher stock price.

But the details tell a different story.

Operating margins in the Personal Systems segment were just 5.0%, reflecting the impact of higher component costs. Meanwhile, the Printing division, which typically delivers stronger profitability, saw revenue decline by 2%. Hardware unit sales in that segment were down 6%, even though margins remained healthy at 18.3%.

In simple terms, growth is coming from a lower-margin business, while the higher-margin side is not expanding.

See how HPQ financials compare with peers such as Dell (DELL), Apple (AAPL), Xerox (XRX) and Microsoft (MSFT).

Guidance Shift Changes The Narrative

The bigger concern came from management’s outlook.

HP maintained its full-year non-GAAP EPS guidance of $2.90 to $3.20, but made it clear that results are now expected to land at the lower end of that range.

That small adjustment carries weight. It signals that cost pressures are not easing quickly and that margin recovery may take longer than expected.

There are also external risks in play, including ongoing supply chain uncertainty and the possibility of tighter U.S. trade regulations. These factors add another layer of unpredictability, even if demand remains steady.

Cash Flow Provides Some Stability

Despite the pressure, HP is still generating significant cash.

The company expects free cash flow of around $2.8 billion to $3.0 billion for the year. That gives it room to continue paying dividends, buying back shares, and investing in supply chain adjustments.

Management is also working on stabilizing costs through new supplier agreements and diversification strategies. These efforts may not deliver immediate relief, but they are aimed at reducing volatility over time.

What The Market Is Waiting For

Right now, investors are in wait-and-watch mode.

The stock is trading at a relatively low earnings multiple, which suggests that much of the bad news is already reflected in the price. But for sentiment to improve, the company needs to show that margins are stabilizing.

The next couple of quarters will be critical. Investors will be looking for signs that memory costs are leveling off and that pricing actions are starting to stick.

The Bottom Line

This is not a demand problem.

HP is successfully selling AI PCs and capturing a meaningful share of the next wave of computing. The challenge is turning that demand into consistent profitability.

Until costs come under control, the company is stuck in a difficult position. It is growing revenue, but struggling to expand margins.

If HP can fix that balance, the stock has room to recover. If not, the gap between strong product momentum and weak stock performance may continue.

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