HP Inc. (HPQ) | The Buildout — AI Infrastructure
The Verdict
HP Inc. makes personal computers, workstations and printers, and sells them alongside supplies, services and subscriptions. It reports in Personal Systems, Printing and Corporate Investments. Its place in the AI buildout is at the endpoint rather than in the data center: it sells AI PCs, deskside AI workstations and the management software that runs on them. That leaves it downstream of the buildout and also in the path of its costs, because AI-datacenter demand for memory and storage raises HP's bill of materials. Management describes the company as a trusted edge AI platform for enterprise customers.
| Market Cap | — |
| Revenue (TTM) | $59.2B |
| Revenue Growth | +8.1% |
| EBITDA Margin (TTM) | 7.0% |
| Net Debt | $6.2B |
| Earnings Beats | 4 of 7 |
| P/E (TTM) | — |
| EV/EBITDA (TTM) | — |
What We Like
- Q3 FY2026 revenue rose 13% year over year and 11% in constant currency — the ninth consecutive quarter of top-line growth.
- Personal Systems revenue rose 18% year over year, and attach businesses — peripherals, collaboration and services such as WXP — contributed 1/3 of overall Personal Systems gross profit.
- FY2026 free cash flow guidance was raised, and the cash conversion cycle is negative 37 days.
- AI PC mix reached 46% of Personal Systems shipments, guided to about 50% by the end of FY2026, 60-70% in FY2027 and more than 70% in FY2028.
- Q3 non-GAAP EPS of $0.83, which included $0.11 of tariff refunds, came in above the top end of guidance even excluding that benefit, according to management.
What We’re Watching
- Memory and storage costs: management says they keep rising in Q4 and FY2027 but at a slower rate. That slowdown is the necessary condition for the margin recovery, and memory makers and other hardware buyers describe the same input market running longer.
- Personal Systems operating margin: Q3 printed 4.6%, below the long-term range, with Q4 guided below that as the trough. The claim prints within roughly a quarter.
- Print supplies revenue fell 4% in constant currency in Q3, deteriorating from flat in Q2, which management partly attributes to Middle East headwinds. Supplies is the high-margin pool behind Print's margin.
- FY2027 guidance is deferred to the Q4 call.
The revenue side of the case is intact and strengthening: nine consecutive quarters of growth, accelerating to 13% in Q3, with Personal Systems growing 18% against falling units. The margin side is not yet proven. Personal Systems operating margin sits at 4.6%, below the long-term range, and the recovery management promises rests on memory cost increases slowing, pricing working through a lag, product redesign, and richer mix — none of which management quantified when four analysts asked. Reported earnings quality is also mixed, because $0.11 of Q3 EPS and $0.19 of the FY2026 guide come from non-recurring tariff refunds largely tied to Print. The open question is how much of Personal Systems' price-driven revenue growth is durable, and management explicitly declined to decompose it.
Earnings Beat
HP reported record Q3 FY2026 revenue of $15.7B on 2026-08-26, up 13% year over year and 11% in constant currency — its ninth consecutive quarter of top-line growth. Personal Systems revenue rose 18% to $11.8B while Printing fell 2%. Non-GAAP gross margin was 18.8%, down year over year on higher commodity costs and a larger Personal Systems mix. Non-GAAP EPS was $0.83 including $0.11 of tariff refunds, and management said EPS was above the top end of guidance even without that benefit. The basket management calls key growth areas grew 46% year over year.
| Metric | Q3 FY2026 | Q2 FY2026 | Q3 FY2025 | YoY |
|---|---|---|---|---|
| Revenue | $15.7B | $14.4B | $13.9B | +12.5% |
| Gross margin | 18.8% | 20.9% | 20.5% | -170bps |
| EBITDA | $1.1B | $731M | $1.0B | +11.2% |
| EPS | $0.71 | $0.49 | $0.80 | −10.8% |
| AI PC mix (% of Personal Systems shipments) | 46% | 44% | n/a | — |
| Personal Systems operating margin | 4.6% | 5.2% | n/a | — |
Importantly, without the tariff benefit, we still delivered EPS above the top end of our guidance range.— Karen Parkhill, CFO, 2026-08-26
Management tone: The tone shifted on tariffs. In Q2 management said the government was not processing refunds for complex multinational companies like HP and that refunds did not apply to it. In Q3 it recognized $0.11 of refunds, and it volunteered the ex-tariff framing rather than letting the headline stand. Interim CEO Bruce Broussard closed his prepared remarks with 'in short, we did what we said we would do.' Management was direct on the refund allocation to Print versus Personal Systems, on the drivers of free cash flow, and on the difference between memory supply and memory cost. It declined to quantify the Personal Systems margin bridge, the price, mix and attach decomposition of Personal Systems revenue, the split between AI PC pilots and at-scale deployments, and FY2027 guidance. It gave no detail and no timeline on the CEO search.
Management Guidance
For FY2026, management guides non-GAAP EPS of $3.19-$3.29, including a $0.19 favorable impact from estimated tariff refunds, and has raised free cash flow guidance. For Q4 FY2026 it guides non-GAAP EPS of $0.69-$0.79 including $0.08 of tariff refunds; Personal Systems revenue below seasonal but up year over year; Personal Systems operating margin below Q3; Print revenue in line with historical seasonality; Print operating margin in the lower half of the long-term range excluding tariff refunds; and OI&E and corporate similar to Q3 levels. Input costs are expected to keep rising in Q4 and FY2027, but at a slower rate than seen to date. FY2027 guidance is deferred to the Q4 call.
Trajectory
Revenue has grown for nine consecutive quarters, reaching $15.7B in Q3 FY2026 from $13.9B a year earlier. The composition has changed: Personal Systems revenue rose 18% while units fell, and management attributes the gap to higher-value mix, repricing and services expansion without saying how much came from each. Gross margin is compressing — 20.9% in Q2 FY2026 to 18.8% in Q3 — as higher commodity costs and a larger Personal Systems mix outweigh pricing and tariff refunds. Cash generation is running ahead of seasonality, with Q3 free cash flow of $1.5B against $756M in Q2, and a cash conversion cycle of negative 37 days.
The Model
The model projects FY+1 revenue of $62,650M with EBITDA of $5,090M, an 8.125% margin, and FY+2 revenue of $64,650M with EBITDA of $5,444M, an 8.42% margin. The near term is anchored by Personal Systems revenue held up by price and mix while unit volumes fall, and by the guided Q4 trough in Personal Systems margin followed by sequential improvement. FY+2 depends on memory and storage cost increases slowing as management expects, Print holding its long-term margin range, and edge-AI products and attach services adding to the mix.
| Metric | FY2025 | Next FY (E) | Following FY (E) |
|---|---|---|---|
| Revenue | $55.3B | $62.6B | $64.7B |
| YoY Growth | — | +13.3% | +3.2% |
| EBITDA | $4.2B | $5.1B | $5.4B |
| EBITDA Margin | 7.6% | 8.1% | 8.4% |
Projections are the median of 4 independent model runs. The model’s revenue sits 3.5% above analyst consensus.
For FY2026, management guides non-GAAP EPS of $3.19-$3.29, including a $0.19 favorable impact from estimated tariff refunds, and has raised free cash flow guidance. For Q4 FY2026 it guides non-GAAP EPS of $0.69-$0.79 including $0.08 of tariff refunds; Personal Systems revenue below seasonal but up year over year; Personal Systems operating margin below Q3; Print revenue in line with historical seasonality; Print operating margin in the lower half of the long-term range excluding tariff refunds; and OI&E and corporate similar to Q3 levels. Input costs are expected to keep rising in Q4 and FY2027, but at a slower rate than seen to date. FY2027 guidance is deferred to the Q4 call.
What Could Go Right — and Wrong
- Memory and storage cost increases slow in FY2027 as management guides, allowing Personal Systems operating margin to recover from the guided Q4 trough.
- Personal Systems revenue keeps growing on price, premium mix and attach even as unit volumes decline, with AI PC mix reaching 60-70% in FY2027.
- HP sizes or breaks out the key growth areas basket that grew 46% year over year, making the edge-AI and recurring-revenue pools modelable.
- Print supplies revenue stabilizes and Print operating margin holds inside the 16%-19% long-term range in FY2027.
- Memory costs keep rising at the current pace into FY2027, outrunning cost mitigation that management itself says takes lead time on redesign and contract repricing.
- Price elasticity spreads from the low end of the market into mainstream PCs, breaking the price-and-mix offset that produced 18% Personal Systems revenue growth on lower units.
- Q4 FY2026 turns out not to be the Personal Systems margin trough, leaving Personal Systems operating margin below the long-term range into FY2027.
- Print supplies keeps declining and Print operating margin settles at the low end of the 16%-19% range rather than the middle.
- Personal Systems channel inventory, which management describes as higher than normal, unwinds into weakening demand as PC unit volumes fall.
Looking Ahead
The next twelve months turn on two dated items. The Q4 FY2026 call carries the FY2027 outlook that management deferred, and the Q4 print tests the guided Personal Systems margin trough. Alongside those, HP has guided AI PC mix to about 50% of shipments by the end of FY2026 and to 60-70% in FY2027, plans to complete its AI-enabled laser portfolio rollout by the end of the fiscal year, and has said HP IQ ships later this year. The Red Hat and NVIDIA edge-AI platform combining ZGX Fury with the NVIDIA GB300 Grace Blackwell Ultra Desktop Superchip remains a planned solution with no availability date, and the CEO search and Investor Day reschedule have no dates attached.
- Q4 FY2026Q4 results and FY27 guide — Management has said it will give the FY2027 outlook on the Q4 call.
- Q4 FY2026Personal Systems margin trough — Q4 Personal Systems margin guided below Q3's 4.6% as the low point.
- FY2026AI PC mix near 50% — Guided exit rate for AI PCs as a share of Personal Systems shipments.
- FY2026AI laser portfolio rollout — AI-enabled laser rollout guided for completion by the end of the fiscal year.
- Later this yearHP IQ launch — The intelligence layer has been described as coming later this year.
- FY2027Print margin range holds — Management says it is comfortable with the 16%-19% Print range for FY27.
Financials
Annual Summary
| Metric | FY2024 | FY2025 | TTM | YoY |
|---|---|---|---|---|
| Revenue | $53.6B | $55.3B | $59.2B | +3.2% |
| Gross Margin | 22.1% | 20.5% | 19.8% | 160bps |
| EBITDA | $4.6B | $4.2B | $4.1B | -9.5% |
| EBITDA Margin | 8.7% | 7.6% | 7.0% | 107bps |
| Net Income | $2.8B | $2.5B | $2.5B | -8.9% |
| Free Cash Flow | $3.2B | $2.8B | $3.9B | — |
| Net Cash | — | — | — | — |
Key Ratios (Trailing)
- P/E TTM—
- EV/EBITDA TTM—
- EV/Revenue TTM—
- Price/FCF TTM—
- Gross Margin (TTM)19.8%
- EBITDA Margin (TTM)7.0%
- Net Margin (TTM)4.1%
- ROIC43.4%
- FCF Conversion94.1%
- SBC / Revenue0.8%
The Company
HP Inc. makes personal computers, workstations and printers, and sells them alongside supplies, services and subscriptions. It reports in three segments. Personal Systems covers desktops, notebooks, workstations including its AI PC portfolio, thin clients, retail point-of-sale systems and displays, and was $11.8B of Q3 FY2026 revenue — roughly 75% of the total. Printing covers consumer and commercial printer hardware, supplies such as ink and laser cartridges, services and solutions, plus Graphics and 3D Printing. Corporate Investments holds business incubation projects and digital enablement investments. Printing was roughly 25% of Q3 FY2026 revenue.
HP's 10-K describes operations in more than 170 countries and names major product development and manufacturing facilities in the United States (Boise, Corvallis, Fort Collins, Fountain Valley, Palo Alto, San Diego, Scotts Valley, Spring, Vancouver), Israel (Kiryat-Gat, Rehovot, Netanya) and China (Chongqing, Shanghai). The 10-K discloses no square footage, headcount, capacity or capex by site for any of them. The company relies on Intel, AMD and NVIDIA for processors for the majority of its PCs and workstations, and relies on Canon for certain laser printer engines and laser toner cartridges on a sole-source basis. It funds itself partly through the supply chain: the cash conversion cycle is negative 37 days.
Business Segments
Competitive Landscape
HP's 10-K lists its competitors by segment, and the competitive read in the evidence is mostly about price and share in mature hardware markets. Personal Systems names Acer, Apple, ASUSTeK, Dell, Huawei, Lenovo, Logitech, Microsoft, Samsung and Toshiba. Printing names Brother, Canon, Pantum, Seiko Epson, Ricoh and Xerox. Two of those names sit in more than one role: Canon is both a sole-source supplier of laser printer engines and toner cartridges and a Printing competitor, and Huawei is both a listed Personal Systems competitor and, as of 2026-08-26, a global patent cross-license counterparty. On the Print side, management describes particular softness in the office market in North America and China and says results reflect a focus on placing profitable units in an aggressive pricing environment. Management also claims sequential share gains in premium PCs and workstations and 4 points of share in big tank printers.
- Canon Inc.Named in the 10-K's Printing competitor list. HP also relies on Canon as a sole source for certain laser printer engines and laser toner cartridges.
- Huawei Technologies Co., Ltd.Named in the 10-K's Personal Systems competitor list. On 2026-08-26 Huawei and HP Inc. signed a global patent cross-licensing agreement.
- Dell Inc.Named in the 10-K's Personal Systems competitor list; not otherwise discussed.
- Lenovo Group LimitedNamed in the 10-K's Personal Systems competitor list; not otherwise discussed.
- Named in the 10-K's Personal Systems competitor list; not otherwise discussed.
Supply Chain
HP sits at the endpoint layer of the AI buildout. It buys processors from Intel, AMD and NVIDIA, buys laser engines and toner from Canon on a sole-source basis, and buys memory and storage from suppliers it does not name. It sells devices through distribution rather than into data centers.
More on HPQ: Earnings recap