HP's PC business is showing signs of recovery, but Bank of America warns that rising costs and margin pressure could weigh on the company's outlook as it prepares to report quarterly results
HP Inc. is set to report its fiscal third-quarter results after the market closes on August 26, with investors watching closely to see if the company's recent gains in its PC business can offset mounting cost pressures. While HP has regained some lost ground in the global PC market, Bank of America remains cautious, warning that higher expenses could limit the benefits of stronger sales.
According to a recent note from Bank of America, HP's Personal Systems segment-which includes its core PC business-is expected to post an 8% year-over-year revenue increase for the quarter ended July 31. This improvement is attributed to firmer pricing, steady demand, and a rebound in market share after a period of decline. Preliminary industry data cited by the bank shows HP recovering global PC share in the second calendar quarter, following a 130 basis-point drop in the first quarter. In the U.S. market, HP's share reportedly improved by 520 basis points sequentially and 40 basis points year over year.
Despite these positive signals, Bank of America analyst Wamsi Mohan reiterated an Underperform rating on HP stock, maintaining a price target of $18-about 40% below the $29.96 share price referenced in the August 19 report. The bank expects HP's fiscal 2026 guidance to remain unchanged, but warns that operating margins in the Personal Systems segment could come under further pressure before stabilizing. Higher memory costs, a greater mix of lower-margin consumer PCs, and component price increases that outpace HP's own pricing actions are all cited as factors that could weigh on profitability.
HP's most recent quarterly filing showed Personal Systems revenue rising 13% year over year to $10.2 billion in fiscal Q2, with commercial sales up 14% and consumer sales up 10%. However, total PC unit shipments fell 7% during the same period, and the segment's operating margin reached 5.2%. The company was able to offset some of the volume decline through higher average selling prices, which rose 22.3% year over year due to pricing strategies, currency effects, and a shift toward higher-value systems.
Profitability Under Pressure
Bank of America forecasts that HP's Personal Systems operating margin will fall to 4.3% in fiscal Q3 and decline further to 3.9% in Q4, which the bank sees as the likely low point. The margin squeeze is expected to be driven by rising memory prices, a heavier tilt toward consumer PCs, and lagging price increases relative to component costs. Some of these pressures may begin to ease in the first half of fiscal 2027, but the near-term outlook remains challenging.
HP's Print segment faces its own headwinds. Bank of America expects Print margins to land near the low end of HP's long-term 16% to 19% range in fiscal Q3, citing a less favorable hardware mix and higher commodity costs, including oil and resin. The bank projects Print margins will improve to about 17.5% in Q4, but cost pressures are likely to persist across both major business lines.
For the third quarter, Bank of America estimates HP will report $14.59 billion in revenue, slightly above the $14.55 billion consensus, but expects non-GAAP earnings per share of $0.63-below the $0.67 average analyst estimate. For fiscal 2026, the bank forecasts $2.97 in EPS, compared with a consensus of $3.03, and values HP at six times its 2027 EPS estimate to justify its $18 price target.
Leadership Uncertainty and Market Context
HP's leadership transition adds another layer of uncertainty. After CEO Enrique Lores stepped down in February, board member Bruce Broussard was named interim CEO while the company searches for a permanent successor. Leadership changes can affect investor confidence, especially when a company is navigating margin pressure and shifting market dynamics.
HP's situation is not unique among large tech companies facing cost headwinds. For example, Cisco has also experienced margin pressure despite strong order growth and a bullish outlook from Bank of America, as discussed in a recent analysis of the company's earnings and valuation on Financial Sumo. These cases highlight how even industry leaders can struggle to translate top-line gains into bottom-line growth when input costs rise faster than pricing power allows.
As HP prepares to release its latest results, investors will be watching not just for signs of revenue growth, but for evidence that the company can manage costs and protect margins in a competitive and inflationary environment. The outcome could shape sentiment toward HP stock in the months ahead, especially as the company works through leadership changes and ongoing market shifts.
In fiscal Q2, HP reported Personal Systems revenue of $10.2 billion, Print revenue of $4.6 billion, and a total operating margin of 6.1%. The company's net earnings for the quarter were $1.1 billion, according to its official filing for the period ended April 30, 2026.
Operating margin is a key measure of a company's profitability, reflecting how much profit remains after covering operating expenses but before interest and taxes. For hardware companies like HP, margins can be especially sensitive to swings in component costs, supply chain disruptions, and shifts in product mix. Investors often track margin trends closely, as sustained declines can signal deeper challenges in pricing power or cost control-even when revenue is growing. Understanding these dynamics is essential for evaluating the long-term prospects of companies in the technology sector.
