Wall Street analysts widely attribute HP Inc's (HPQ.US) weaker-than-expected guidance to two key factors: the absence of a PC upgrade wave driven by AI devices like AI PCs and soaring memory costs fueled by the global AI computing boom. Notably, competitors with data center server businesses (e.g., Dell) remain unscathed. In pre-market trading Wednesday, HP's shares fell over 5% after reporting soft Q4 earnings and disappointing FY26 profit outlook.
For Q4 (ended Oct 31), HP posted $14.6B in revenue (+4.2% YoY), slightly above consensus ($14.5B). Non-GAAP EPS of $0.93 marked a 3% decline, matching estimates. The company’s FY26 EPS guidance of $2.90-$3.20 (vs. $3.32 consensus) included plans to cut 4,000-6,000 jobs by FY28 using AI tools. For Q1 (ending January), midpoint EPS guidance ($0.73-$0.81) trailed the $0.78 average estimate.
**Storage "Super Cycle" Winners and Losers Emerge** Morgan Stanley’s November report warned of an unprecedented memory chip "super cycle" squeezing PC/server makers’ margins, with NAND/DRAM price surges eroding OEM profitability. These chips constitute 10%-70% of high-end device BOM costs. The bank estimates every 10% memory price hike could pressure OEM gross margins by 45-150 bps without hedging.
This cycle—driven by AI-driven demand spikes, complex HBM production bottlenecks, and NAND underinvestment—differs from past trends with faster/longer price hikes. Weak non-AI hardware demand (vs. 2016-2018) exacerbates margin risks for HP and peers.
**Why Western Digital (WDC), Seagate, and "New" SanDisk Benefit** AI data center expansion fuels HBM demand while lifting all storage tiers (NVMe SSDs, nearline HDDs, cold storage). HDD supply discipline, NAND recovery, and cloud vendor multi-year contracts boost pricing/visibility. Meanwhile, SK Hynix, Samsung, and Micron’s HBM focus (requiring complex manufacturing) has tightened supply for traditional storage.
Morgan Stanley downgraded multiple hardware OEMs, including Dell (Overweight to Underweight) and HP (Neutral to Underweight), citing dual profit/valuation pressures.
**Wall Street’s Gloomy HP Outlook** Evercore ISI’s Amit Daryanani noted HP faces "more acute memory cost headwinds vs. peers like Dell," maintaining an In-Line rating but cutting PT from $29 to $25. Analysts highlight memory leaders (Samsung, SK Hynix, Seagate, Micron, etc.) are hiking prices 30%-50% amid AI server demand—boosting their profits while hurting HP.
Morgan Stanley’s Erik Woodring warned, "Memory inflation is showing its ugly face, with risks skewed downward." He emphasized unprecedented CY26 DRAM/NAND supply constraints and broken supplier contracts, downgrading HP to Underweight ($21 to $20 PT). HP shares traded near $23.7 pre-market Tuesday.
Wells Fargo’s Aaron Rakers estimates memory/NAND (16%-18% of PC costs) could slash HP’s CY26 EPS by up to $0.30. While HP may pass costs via PC price hikes, "demand elasticity weakens beyond 5% increases," he cautioned, rating HP Underweight ($25 PT).
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