Q1 Revenue $14.4B +7% YoY With Non-GAAP EPS $0.81 at Top of $0.73-$0.81 Guide and AIPC Reaching >35% of Mix (Up From 30% in Q4); BUT CEO Transition Dominates the Print — Enrique Lores Out After 36 Years; Bruce Broussard Interim CEO; CEO Search Underway; Memory Cost Now 35% of PC Bill of Materials (Up From 15-18% at Q4 FY25 Print) With Prices Doubling Sequentially Q1 to Q2; PS Operating Margin 5% Within Range BUT Guided Below 5-7% Long-Term Range for Remainder of FY26; FY26 EPS Now Expected Toward LOWER END of $2.90-$3.20; Investor Day Postponed During CEO Transition; PC Unit TAM CY26 Now Expected to Decline Double-Digits; Upgrading to Hold as the Stock Trades Below Our $20-$26 Range

Coverage Update from Q4 / FY25

Three months ago at the Q4/FY25 print, we downgraded HPQ to Underperform from Hold with a $20-$26 fair value range. Our thesis: FY26 EPS guide $2.90-$3.20 essentially flat to down vs. FY25's $3.12, memory cost inflation creating structural margin pressure, $1B AI restructuring with 4-6K layoffs signaling structural acknowledgment. We expected modest downside pressure through FY26 with limited multi-quarter recovery path.

The Q1 FY26 print confirms the operating side of that framework on multiple dimensions:

• Memory cost worsened materially: 35% of PC BOM (vs 15-18% at Q4) — far steeper than the Q4 trajectory implied
• PS margin guided below long-term range for FY26: "below our long-term range for the remainder of the year"
• CEO transition adds execution uncertainty: Lores out after 36 years; interim CEO; search underway
• Investor Day postponed: Removes near-term framework articulation catalyst
• FY26 EPS at lower end of $2.90-$3.20: Confirmed in management framework
• PC unit TAM CY26 now declining double-digits: Worse than the Q4 framework anticipated

The price side has moved faster than the fundamentals. The stock closed at $18.20 before the print, below the bottom of the $20-$26 range, so the downside we expected at the downgrade has already arrived. We upgrade to Hold and keep the range at $20-$26. The Q1 operational beat ($0.81 EPS at top of guide) doesn't change the structural framework — Q1 had favorable demand pull-in ahead of memory pricing increases and unfavorable trajectory ahead.

Results vs. Consensus — Q1 FY26

Q1 Scorecard

YoY Comparison

FY26 Guide Update vs. Prior

Quality-of-Print Callout

Segment Performance

Personal Systems ($10.3B revenue / +11% YoY / 5% PS operating margin)

PS revenue +11% YoY (12% unit growth) — above expectations. Consumer revenue +16% on 14% unit growth — partly attributed to demand pull-in ahead of rising memory prices. Commercial revenue +9% on 11% unit growth — Windows 11 refresh continued especially in EMEA + AIPC strength. AIPC mix now >35% of shipments (up from 30% Q4). HP "outperformed the market" and gained share in premium categories.

PS operating margin 5.0% — within the guided range but lower half. Margin compression from memory cost increases, partially offset by pricing increases. CFO: "Our operating margin in Personal Systems was 5%, within the range we guided at the beginning of the quarter but slightly below expectations, given the stronger-than-expected performance in consumer and education."

For the rest of FY26: PS operating margin expected BELOW long-term 5-7% range. Memory cost roughly doubling sequentially Q1 to Q2 with further escalation. Mitigation actions in flight (pricing, portfolio redesign, supplier diversification, AI cost program) but the full benefit takes multiple quarters.

Assessment: PS top-line strength is structurally bullish — AIPC trajectory continues + Win 11 refresh momentum + commercial premium strength. But the margin compression below long-term range is the binding constraint. The pull-in benefit from Q1 makes the back-half trajectory weaker than the headline suggests. We model FY26 PS margin at 4-4.5% with downside risk if memory continues escalating.

Print ($4.2B revenue / -2% YoY / 18.3% Print operating margin)

Print revenue -2% YoY (improvement in rate of decline). Consumer revenue -8% YoY; commercial revenue -3% YoY (higher ASPs offsetting lower volumes). Supplies revenue -2% YoY in constant currency. Key growth areas continued strong performance: consumer subscriptions double-digit YoY growth with all-in plan ramp; 3D + drones/robotics drove double-digit growth; industrial print 10th consecutive quarter of YoY growth.

Print operating margin 18.3% (upper half of 16-19% range). For FY26: Print operating margin guided near top of 16-19% range — slight raise vs. Q4 framework. Print continues as structural cash cow.

Assessment: Print delivered as expected — structural cash cow with margin discipline. The mix shift toward higher-margin recurring revenue (consumer subscriptions, industrial graphics, workforce solutions) continues. We expect Print FY26 margin at 17.5-18.5% with continued cash flow contribution.

FY26 Outlook — Lower End Expected With Reaffirmed Range

Key Topics & Management Commentary

Overall Management Tone: The Q1 call had a different feel than prior quarters. Interim CEO Bruce Broussard opened with a measured introduction and emphasized continuity + disciplined execution + active leadership team. The CFO Karen Parkhill carried the operational narrative with familiar disciplined framing. Notably absent: any specific FY27-FY28 framework articulation (deferred to a postponed Investor Day) or new strategic positioning beyond the existing playbook. The tone is to stay the course through the transition rather than set out a forward strategy.

1. The CEO Transition — Enrique Lores Out After 36 Years

"I'm excited to be here with you for my first earnings call as interim CEO. I have served as a director on HP's Board since 2021, and I, along with my fellow board members, strongly believe in the management team and the strategic direction we are charting at HP. I'd like to also acknowledge Enrique Lores and his contribution to the success of the company during his 36-year tenure. We are sincerely grateful to him. … I want to provide a brief update on the CEO search. The process is well underway. The Board's priority is to identify the right leader to guide HP through its next phase of evolution. We will consider a broad range of candidates with a preference for proven executives who have successfully operated large multi-segment business in a complex and dynamic environment."
— Bruce Broussard, Interim CEO

Enrique Lores is out after 36 years at HP and 6+ years as CEO. Bruce Broussard (board member since 2021, former Humana CEO) is interim CEO. CEO search "well underway" with preference for proven multi-segment executives.

The transition during the memory cycle adds material execution risk. Strategic direction changes from a permanent CEO could materially affect the operational framework. The Investor Day postponement removes the near-term framework articulation forum.

Assessment: The CEO transition is the binding negative datapoint. Until a permanent CEO is named (likely 6-9 months), strategic direction risk persists. The candidates would inherit a company in the middle of a memory cycle + restructuring + AIPC transition — a complex starting position. We watch closely for the CEO announcement and any framework articulation.

2. Memory Cost Now 35% of PC BOM — Materially Worse

"To put this in a little bit more concrete terms, we did share last quarter that memory and storage costs made up roughly 15% to 18% of our PC bill of materials and we now currently estimate this to be roughly 35% for the year. As we've said, we expect to see that largest impact in the second half and because of that, we also said that we now expect our PSOP margins to be below our long-term range for the rest of the year."
— Karen Parkhill, CFO

The memory cost framework has deteriorated significantly. At Q4 FY25 print (three months ago), memory was 15-18% of PC BOM. Now it's estimated at 35% for the year — a 2x increase. Current memory prices are up roughly 100% sequentially, Q1 to Q2, with further escalation expected. Q1's own memory cost increase was roughly in line with what management outlined at the start of the year.

PS operating margin will be below 5-7% long-term range for the remainder of FY26. The mitigation framework (long-term contracts, qualified suppliers, portfolio redesign, AI cost program, pricing) provides partial offset but takes multiple quarters to fully implement.

Assessment: Memory inflation is the central operational challenge. The 2x deterioration in three months suggests the situation could continue worsening. We model PS margin at 4-4.5% FY26 with downside risk to 3.5% if memory continues escalating.

3. Investor Day Postponement

"Lastly, I want to provide an update on the Investor Day we had planned for April. In light of our ongoing CEO transition, we will be rescheduling this and look forward to sharing a date with you at the right time."
— Bruce Broussard, Interim CEO

The Investor Day previously scheduled for April 23, 2026 has been postponed "in light of our ongoing CEO transition," to be rescheduled at the right time. This removes the near-term framework articulation catalyst that we had expected to provide FY27-FY28 outlook + detailed AI cost program framework.

The postponement is operationally reasonable — a new permanent CEO will need time to develop and articulate strategic direction before a formal Investor Day. But it leaves a multi-quarter framework articulation gap with the FY27-FY28 trajectory unknown.

Assessment: The Investor Day postponement removes a significant catalyst that could have re-anchored the equity story. Until rescheduled (likely 6-12 months after a permanent CEO is named), investors have limited framework visibility beyond Q1 FY26 results + the existing FY26 guide.

4. AIPC Penetration >35% — Continued Acceleration

"This quarter, AI PC is accounted for over 35% and of our PC shipments, up from 30% in the prior quarter and 25% a quarter before. We also launched the HP EliteBoard G1a. This is the first AI PC with intelligence built into the keyboard or hybrid work, and it's just one example of how we are bringing on-device architecture to life."
— Bruce Broussard, Interim CEO

AIPC mix >35% in Q1 — continued sequential gains from 30% Q4 and 25% Q3, the first quarter above 25% (at Q2 FY25, HP was on track to pass 25% by year-end). The steady trajectory is structurally bullish for PS revenue mix + ASP. The HP EliteBoard G1a launch demonstrates HP's continued AIPC product innovation.

The exploratory partnership with OpenAI on Frontier (their enterprise AI agent platform) positions HP for the next phase of enterprise AI deployment. WXP (Workforce Experience Platform) data ingest now from 50 million endpoints with 1+ TB of data daily.

Assessment: AIPC continues as the strongest secular tailwind. We model AIPC reaching 40-45% by end-FY26 — supporting continued PS revenue + ASP growth. However, the AIPC tailwind doesn't offset memory compression in FY26.

5. PC Unit TAM Now Declining Double-Digits CY26

"In Personal Systems, we are aligned with industry experts now projecting the PC unit TAM to decline double digits in calendar year '26, reflecting the impact of industry-wide pricing actions on demand. Against this backdrop, we continue to expect to drive revenue growth in our fiscal year through pricing actions, share gains in premium categories and increased attach of higher-margin offerings."
— Karen Parkhill, CFO

PC unit TAM CY26 now expected to decline double-digits — materially worse than the Q4 FY25 framework, which expected units to decline (no size given) and revenue TAM to grow low-single-digit. The decline reflects the impact of industry-wide pricing actions (memory pass-through) on demand elasticity.

The Q1 call did not update the low-single-digit revenue-TAM growth HP gave at Q4 FY25, but management still expects to grow HP's own FY26 revenue. HP's strategy: outperform the market via pricing actions + AIPC mix + premium category share gains.

Assessment: The PC unit decline is the most concerning datapoint. Even with HP's share gain narrative, the absolute unit volumes will compress. The revenue growth coming from pricing creates demand-elasticity risk if memory costs continue escalating. We model FY26 PS revenue up about 1%, consistent with our $55-55.5B company total: Q1's +11% gives way to declines over the rest of the year as units fall, with price and mix only partly offsetting.

6. Q1 Demand Pull-In Ahead of Memory Pricing

"In Consumer, we delivered 16% revenue growth on a 14% unit increase, above our expectations. We attribute part of this above seasonal performance to demand pull-in aimed at avoiding the impact of rising memory prices. At the same time, we drove increased ASPs while delivering share gains in premium consumer devices."
— Karen Parkhill, CFO

Q1 consumer revenue +16% above expectations was partly driven by demand pull-in — customers buying ahead of expected memory price increases. The CFO explicitly attributes "part" of the above-seasonal performance to this dynamic.

This is operationally a one-time benefit. Q2 + H2 will not benefit from the pull-in dynamic and may face the inverse — demand softness as pull-in customers have already purchased.

Assessment: The Q1 beat is partially inflated by pull-in benefits that won't repeat. Q2 FY26 EPS guide of $0.70-$0.76 (sequentially DOWN from $0.81) confirms the pull-in benefit is unwinding.

7. Q2 FY26 EPS Guide $0.70-$0.76 — Sequentially Down

"For Q2, we expect non-GAAP diluted net earnings per share to be in the range of $0.70 to $0.76. And our second quarter GAAP diluted net earnings per share to be in the range of $0.52 to $0.58."
— Karen Parkhill, CFO

Q2 FY26 EPS guide $0.70-$0.76 (midpoint $0.73) — sequentially down from Q1's $0.81. The sequential decline reflects: (a) memory cost escalation impact, (b) Q1 demand pull-in benefit unwinding, (c) mitigation actions taking time to fully implement.

The Q2 guide implies first-half FY26 EPS of ~$1.54 ($0.81 + $0.73). For full-year FY26 EPS at the lower end of $2.90-$3.20 (~$2.95), the H2 implied EPS is ~$1.41 — meaningfully below H1 due to continued memory pressure.

Assessment: The Q2 guide confirms the back-half trajectory deterioration. FY26 EPS at $2.95-$3.00 (lower end of range) is now the base case.

8. AI Cost Program — $300M Run-Rate Savings by End-FY26

"We are making solid progress on our initiative to embed AI into our processes to accelerate product innovation, improve customer satisfaction and boost productivity. For example, we are working to integrate AI into our channel partner experience through a digital teammate that will answer questions, act on queries, provide integrated workflows and proactively guide next steps. We are also scaling additional AI agents and supply chain to automate order entry, sales returns and product data management."
— Karen Parkhill, CFO

The AI cost program is delivering early traction with AI agents in channel partner experience + supply chain automation. ~$300M of gross run-rate savings expected by the end of FY26 (out of a $1B gross run-rate target by FY28). The savings are structurally offsetting some of the memory compression but not enough to fully bridge the gap.

Assessment: AI program implementation appears on track. Full $1B program completion by end-FY28 should support PS margin recovery in FY27 + FY28. The ~$300M run-rate exiting FY26 helps but doesn't change the FY26 trajectory.

9. Memory Mitigation — Long-Term Contracts and Strategic Inventory

"On the supply side, we have leveraged the strength of our supplier relationships and secured long-term agreements covering our memory requirements for fiscal '26. We've qualified new suppliers built in strategic inventory positions for key platforms and cut the time to qualify new material in half to accelerate our product configuration changes."
— Bruce Broussard, Interim CEO

HP has secured long-term agreements covering FY26 memory requirements. Qualified new suppliers + built strategic inventory positions + cut qualification time in half. The supply position is operationally secured for FY26.

However, securing supply doesn't mean securing low cost — the long-term agreements presumably reflect current elevated pricing.

Assessment: Supply security is structurally bullish but cost mitigation is the more important variable. Mitigation continues to be the multi-quarter implementation challenge.

10. Recently Enacted U.S. Supreme Court Tariff Ruling

"I also want to touch briefly on last week's U.S. Supreme Court ruling on tariffs. We are evaluating the impact of including the announcement of new tariffs in the last few days. Right now, we do not expect to be negatively impacted by the subsequent developments following the court decision."
— Bruce Broussard, Interim CEO

U.S. Supreme Court issued a ruling on tariffs late prior to the Q1 print. HP is evaluating the impact. Management expects no negative impact at this point. The supply-chain pivot completed in FY25 (almost all US-bound products built outside China by mid-FY25) positions HP relatively favorably regardless of tariff outcomes.

Assessment: The tariff situation continues to be fluid but HP's structural supply-chain diversification mitigates the impact. The memory cost cycle is a more material concern than continued tariff volatility.

11. Capital Allocation — $600M Q1 Return

"In Q1, we returned over $600 million to shareholders through both dividends and share repurchases. While our leverage ratio remains slightly above target in Q1, we have maintained increased cash balances, reserving sufficient funds to pay down 2026 debt maturities, which enabled us to buy back shares in the quarter."
— Karen Parkhill, CFO

Q1 returned $600M+ to shareholders. Leverage still slightly above target with cash balance increased for 2026 debt maturity coverage. Capital return framework maintained.

Assessment: Capital return discipline is operationally strong. At $18.20 the $1.20 dividend yields 6.6%, and with the buyback it is the main support for the stock. We expect continued ~$2.5-$2.8B annual capital return through FY26 + FY27.

Analyst Q&A Highlights

Memory Cost Impact Quantification and LTA Coverage

Lead analyst question on memory cost impact quantification and LTA coverage scope. CFO declined to specifically quantify net of mitigation but provided context: memory now ~35% of PC BOM (up from 15-18%), with current prices up roughly 100% sequentially. A later clarification on the call placed that increase Q1 to Q2 and said Q1's increase was roughly in line with plan.

Q: "For Bruce or Kevin or even for Ketan. I understand you're operating well in a tough and fluid commodity environment. I want to find out if you can quantify, what is the memory cost impact in Jan quarter? What is baked in terms of the memory cost increase in April and fiscal year? And along the same path, with your memory suppliers, are you able to secure LTAs for volume only? Or is it volume and pricing?"
— Sreekrishnan Sankarnarayanan, TD Cowen

A: "In terms of the memory cost in the quarter, we — it was included in our overall results. And given the fluidity of memory at this point, we're not going to try to quantify that net of mitigation actions. I would say that we have included a significant increase in memory costs in our guidance. We have seen memory costs increase roughly 100% of sequentially, and we do forecast that to further increase as we move into the fiscal year. To put this in a little bit more concrete terms, we did share last quarter that memory and storage costs made up roughly 15% to 18% of our PC bill of materials and we now currently estimate this to be roughly 35% for the year."
— Karen Parkhill, CFO

Assessment: The memory cost framework deterioration is material — 2x increase in PC BOM share in three months. The mitigation framework provides partial offset but doesn't bridge the entire gap.

FY26 EPS Guide Approach Despite Memory Uncertainty

Question on FY26 EPS guide approach given memory cost uncertainty. CFO confirmed prudent posture, EPS first-half weighted, memory escalation embedded.

Q: "I don't want to overly focus on memory, but can you just help us understand how you at least approach guiding for the full year, understanding that memory cost beyond this quarter are largely uncertain, but likely to inflate further, meaning what kind of memory price appreciation are you embedding in your fiscal '26 guide today?"
— Erik Woodring, Morgan Stanley

A: "As far as the full year goes, I'd really summarize it with 3 key factors that help shape our current outlook. One, we had stronger revenue, particularly in the first half that I just mentioned. Second, yes, we do see increased memory cost, and that's going to be partly offset by our higher mitigations that we've talked about. And third, we — on print margins, we now expect to be at the high end of our long-term range. So when you take all that together, right now, I would say that we're taking a prudent view, assuming that some of our revenue strength in the first half moderates and our fiscal year EPS is more first half weighted than typical."
— Karen Parkhill, CFO

Assessment: FY26 EPS first-half weighted with memory escalation embedded. Lower end of $2.90-$3.20 range expected. Q2 FY26 guide $0.70-$0.76 supports this trajectory.

CEO Transition Process and Timeline

An analyst asked what the CEO search looks like and what kind of candidate the Board wants. The interim CEO said a search committee has been in the market for about three weeks and named three criteria: a proven record of delivering value, the ability to navigate a complex and dynamic environment, and global multi-segment experience. He gave no timeline. A follow-up confirmed the Board is taking a "very broad view" that includes candidates from outside the PC and print industry.

Q: "… would just love to get any context that you guys can share on the CEO search, what types of folks you're looking for and what the process is looking like?"
— Ananda Baruah, Loop Capital

A: "A few things on the CEO search. First, we've already established a search committee, and we are in the market, and that's been going on for the last 3 weeks or so. … First, the individual that's had a proven track record of delivering value for shareholders and customers. Second is as evidenced by this conversation, being able to navigate through a complex and dynamic environment. And then lastly, to be focused and the ability to have a global and multisegment business experience."
— Bruce Broussard, Interim CEO

Assessment: CEO transition timeline likely 6-9 months. Strategic direction risk persists until permanent CEO is named.

Memory Mitigation Playbook

The head of Personal Systems added to the CFO's answer on memory supply agreements with HP's playbook for managing through the memory cycle while maintaining customer value.

Q: "… with your memory suppliers, are you able to secure LTAs for volume only? Or is it volume and pricing?"
— Sreekrishnan Sankarnarayanan, TD Cowen

A: "Given the volatility of the situation, we have a range of mitigation actions, which we are working on, and we have managed this type of disruption before. … We have LTAs, which obviously protects our supply coverage. We also want to leverage part of our broad portfolio with silicon diversity so that we can offer different choices to customers in order to ensure how we do the demand-supply equation matching and also introduce low memory configurations."
— Ketan Patel, Head of Personal Systems

Assessment: HP's mitigation playbook is multi-faceted (supply, portfolio, cost, pricing). The combination provides partial mitigation but doesn't change the fundamental memory cycle dynamics.

Print Margin Levers

An analyst asked what levers support Print margins at the high end of the range for the year. The CFO pointed to the segment's recent record at the top of its long-term range, the shift to a profit-upfront model with Big Tanks, subscription growth, share gains in high-value categories and cost reduction.

Q: "You folks talked about print margins kind of going towards the higher end of your ranges, I assume kind of in the high end, in the 19% range for the year. Can you just talk about like what are the levers that enable print margins to expand from here …"
— Amit Daryanani, Evercore ISI

A: "So I'd say you've seen us operate at the high end of our long-term range in print quite a bit lately. And so this is not new to us. It's something that we'll continue to do and drive. With our print strategy, we're clearly focused on profitable growth, and that includes shifting our business model to profit upfront with Big Tanks and also driving increased subscriptions. … We're also focused on gaining share in high-value categories. And of course, we're always focused on reducing our cost structure to remain competitive."
— Karen Parkhill, CFO

Assessment: Print continues as structural cash cow with margin discipline. The mix shift toward recurring revenue is the right strategic direction.

What They're NOT Saying

1. Specific CEO transition timeline. "The process is well underway," without a specific timeframe.
2. FY27 EPS framework. Postponed Investor Day removes the framework articulation forum.
3. Quarterly memory cost trajectory beyond Q2 doubling. Directional commentary without quarter-by-quarter framework.
4. Magnitude of pull-in benefit to Q1 revenue. Qualitative "part of" framing without specific quantification.
5. Specific competitive positioning on AIPC vs. Dell, Lenovo, Apple. Share data came only as HP's own gains (premium +1.6 points and AI PC +1.8 points in CQ4; print share 33.5%), with no comparison against named competitors.
6. Specific recurring revenue size or growth rate. Strategic emphasis without quantification.
7. Specific AI cost savings flowing through P&L by quarter. ~$300M end-FY26 run-rate target without quarterly granularity.
8. Specific Print mix shift toward subscription/recurring revenue contribution. Mentioned but not detailed.
9. Specific tariff exposure post-Supreme Court ruling. Evaluation in process without specific impact quantification.

Market Reaction

• Pre-print setup: HPQ closed Feb 24, 2026 at $18.20, the low of its 52-week closing range ($18.20-$34.67). YTD -18.3% (vs. S&P 500 +0.7%); trailing 30-day -6.3%; trailing 12-month -47.5%.
• Next-session move (Feb 25): Opened at $17.70 (-2.7%), traded in a $17.56-$19.20 range (-3.5% to +5.5%) and closed at $18.21 (+0.1%), against an S&P 500 gain of 0.8%.
• Volume: 48.4M shares on the reaction session, 2.5x the 30-day average of 19.0M.

Interpretive read: The market is processing the print as mixed — operational beat in Q1, but CEO transition + memory worsening + Investor Day postponement weigh on the forward outlook. The flat close after a -2.7% open, at the bottom of the 52-week range, says the market had largely discounted the deterioration before the print. With a 6.6% yield and continued buybacks, we see limited further downside from $18.20 unless FY26 guidance is cut. A move back into our $20-$26 range likely needs (a) memory cycle inflects favorably, (b) CEO transition completes with framework articulation, or (c) AIPC trajectory accelerates beyond expectations.

Street Perspective

Debate 1: How Long Does the CEO Transition Period Last?

Bull view: CEO search "well underway" suggests near-term completion. Board has clear preference (proven multi-segment executive). Interim CEO Broussard brings governance discipline. Transition could be resolved in Q2 or Q3 FY26 with framework articulation following.

Bear view: CEO transitions during cyclical downturns typically take 6-12 months for strategic alignment. The new CEO faces complex starting position (memory cycle + restructuring + AIPC transition + Print decline). Could take 12-18 months for new framework to be articulated and executed.

Our take: 6-9 months for CEO transition completion; 12-18 months for full strategic framework articulation. Multi-quarter execution risk persists.

Debate 2: Does Memory Cycle Normalize in FY27?

Bull view: Memory cycles are cyclical and self-correcting. New supply coming online + demand elasticity from pricing increases moderates demand growth. FY27 memory normalization supports PS margin recovery to 5-7% range.

Bear view: Current memory cycle is structurally different — AI compute demand driving sustained high prices. Memory could remain elevated through FY27 + FY28, pressuring PS margin multi-year.

Our take: Memory cycle normalization expected in CY27, supporting PS margin recovery in FY27 H2 + FY28. Risk of extended cycle if AI compute demand continues structurally elevating memory prices.

Debate 3: Is the Dividend Yield Floor Robust?

Bull view: Dividend raised to $0.30/quarter ($1.20 annualized); Q1 dividends declared of $0.60/share vs. $0.58 a year ago (+3.4%). At $18.20 the yield is 6.6%. FY26 FCF $2.8-$3.0B supports dividend + buyback, and yield support should limit downside from here.

Bear view: If memory cycle worsens or PS margin compresses below 4%, FCF could come under pressure. Dividend growth likely stays modest after this year's ~3% raise. The stock could fall further if FCF compresses below $2.7B.

Our take: At 6.6%, the yield is covered more than twice by our $2.7-$2.8B FY26 FCF model and supports the stock near $18. Further downside needs a severe scenario (memory escalation continues + AIPC stalls + macro deterioration).

Model Implications & Thesis Scorecard

Model Update

• FY26 estimates (lower end of guide): Revenue $55-55.5B (-0.5% to +0.4%); non-GAAP EPS $2.95-$3.00; PS margin 4-4.5%; Print margin ~18%; FCF $2.7-$2.8B
• FY27 estimates (contingent on memory normalization H2): Revenue $56B (+1-2%); non-GAAP EPS $3.10-$3.30; PS margin ~5.5%; Print margin ~17.5%; FCF $2.8-$3.0B
• FY28 estimates: Revenue $57B (+2%); non-GAAP EPS $3.45-$3.65; PS margin ~6%; Print margin ~17.5%; FCF $3.0-$3.2B
• Long-term framework: Low-single-digit revenue growth; PS margin 5-7% under normalized commodity; Print margin 16-19%; ~100% FCF return when leverage permits

Thesis Scorecard

Rating & Action

Upgrading to Hold from Underperform. The Q1 print confirms the operating thesis behind the Q4 FY25 downgrade, and the stock has already priced it. Three reasons the operating view stays negative:

1. CEO transition during the memory cycle. Enrique Lores out after 36 years; Bruce Broussard interim CEO; CEO search underway. Adds execution uncertainty during the critical memory cycle period. Investor Day postponement removes the FY27-FY28 framework articulation forum.
2. Memory cost worsened materially. 35% of PC BOM now (vs 15-18% at Q4 FY25 print) — 2x increase in three months. Q1-to-Q2 memory cost roughly doubling sequentially. PS operating margin guided below 5-7% range for remainder of FY26.
3. FY26 EPS at lower end of $2.90-$3.20. ~$2.95 expected — below FY25's $3.12 (essentially flat to down). Q2 FY26 guide of $0.70-$0.76 confirms sequential trajectory deterioration.

Why Hold, not Underperform. HPQ closed at $18.20 before the print, below the bottom of our $20-$26 fair value range, down 18.3% YTD and 47.5% over twelve months, and the reaction session closed flat. The $1.20 dividend yields 6.6% at that price. The downside we expected at the downgrade has happened.

Why not Outperform. Estimates are still falling: memory prices double into Q2, the Q2 guide is down sequentially, and FY26 sits at the low end of guidance. On current estimates the range implies +10% to +43% plus the 6.6% yield, but we do not underwrite that while estimates are still falling: a cut to FY26 guidance would pull our range down toward the current price. Fair value range maintained at $20-$26. We revisit the rating once the Q2 print shows the memory hit.

What would move us to Outperform:

• Memory cost stabilizing after the Q1-to-Q2 doubling — would materially improve FY26 EPS toward $3.10-$3.15 and support PS margin trajectory
• New permanent CEO with credible framework articulation — strategic direction clarity would reduce execution uncertainty
• FY26 EPS landing above $3.15 (vs. $2.95 expected) — would demonstrate mitigation framework working better than expected
• AIPC trajectory reaching 50%+ by end-FY26 — would support premium mix benefits offsetting memory pressure
• Significant capital return acceleration (buyback at $1B+/quarter) — share count reduction supporting EPS leverage
• Investor Day rescheduled with structured framework articulation — restores forward visibility

What would move us back to Underperform: a cut to FY26 guidance, memory cost escalation beyond the Q1-to-Q2 doubling, or a rally back into the upper half of our range before the memory hit shows in the numbers.

Key watch items into Q2 FY26 (May 2026):

• Q2 FY26 results vs. $0.70-$0.76 EPS guide
• Memory cost trajectory — sequential doubling materializing or moderating
• PS operating margin Q2 — magnitude of compression below 5-7% range
• CEO transition progress — permanent CEO announcement
• AIPC penetration continuing past 35%
• Investor Day rescheduling timeline
• Capital return cadence
• FY26 guide range — any narrowing or shift
• Print margin holding in 16-19% range
• Mitigation framework progress (supply, pricing, portfolio actions)