The PC Comeback Has A Memory Problem

May 31, 2026

You are not buying a perfect turnaround here.

You are buying a cheap hardware stock with a real demand catalyst, a big dividend, and a margin problem the market already understands.

The AI PC cycle is finally showing up in the numbers. The issue is whether rising memory costs eat too much of the upside before the next leg of growth arrives.

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What Just Happened

The quarter beat expectations

HP Inc. (NYSE: HPQ) reported second-quarter revenue of $14.41 billion, up 9% year over year and above analyst expectations of about $14.07 billion. Adjusted EPS came in at $0.86, comfortably ahead of the $0.71 estimate.

That is a good quarter. It shows demand is not dead, the PC refresh cycle is real, and the company is still capable of beating expectations even in a difficult hardware market.

AI PCs are becoming a real driver

AI PCs made up 44% of HP’s total PC shipments in the quarter, up from more than 35% in the prior quarter. Management expects AI PCs to reach 60% to 70% of shipments next fiscal year and exceed 70% by fiscal 2028.

That is the core reason to care. HP is not suddenly a high-growth AI stock, but it is benefiting from one of the biggest PC replacement cycles in years.

The market still has a margin problem to digest

The stock initially jumped after the report, but the enthusiasm cooled because HP warned that rising memory costs will pressure margins. Management expects operating margins to hit a low point in the fourth quarter, then improve sequentially into fiscal 2027.

That means the setup is not clean. Demand is improving, but costs are rising too.

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What The Business Actually Does

The simple version

HP sells personal computers, printers, supplies, workstations, and related hardware and services.

Why this story matters now

For years, the PC market looked tired. Pandemic pull-forward demand faded, consumers slowed purchases, and enterprises delayed refresh cycles.

Now two things are changing at once:

  • The Windows 11 refresh cycle is pushing businesses to upgrade aging machines

  • AI PCs are giving companies a reason to buy more premium devices

That does not make HP a rocket ship. It does make the stock more interesting at less than 10x earnings.

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Why The Market Cares

1) The AI PC cycle is finally visible

AI PCs are no longer just a marketing phrase. They are now a large and growing share of HP’s shipments.

That matters because AI PCs tend to sit in higher-value categories. If HP can keep shifting mix toward premium devices, revenue and margins get better over time.

2) Pricing power is improving

HP is raising prices and prioritizing higher-margin units to offset rising component costs. CFO Karen Parkhill said the company has taken deliberate actions to lower memory costs by reconfiguring products, sourcing cheaper components, prioritizing higher-margin units, and adjusting pricing.

That is the right playbook. The company cannot control the memory cycle, but it can control mix, pricing, and supply chain decisions.

3) The valuation is still low

HP trades around 9.6x earnings and offers a dividend yield near 4.7%. That gives investors a very different setup than the expensive AI infrastructure names.

You are not paying for perfection here. You are paying a low multiple for a company with improving PC demand, a dividend, and a visible catalyst.

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What The Financials Are Signaling

The business is stabilizing

Revenue growth of 9% is a strong signal after a rough period for PCs. The company also beat profit expectations, which means demand improvement is not just cosmetic.

The key now is whether HP can keep revenue moving higher while protecting margins through the memory-cost squeeze.

Guidance is cautious, not disastrous

HP expects third quarter adjusted EPS of $0.61 to $0.71, with the midpoint slightly above analyst expectations of $0.64. For fiscal 2026, management now expects adjusted EPS of $2.90 to $3.10, compared with the prior range of $2.90 to $3.20.

That is not an exciting guide. It is a realistic one. The company is telling investors that the AI PC cycle is helping, but memory costs will limit near-term profit expansion.

The dividend matters

With a dividend yield near 4.7%, HP gives you income while the PC refresh cycle plays out. That is important because this is not a momentum-only trade.

If the stock stays range-bound while margins bottom, the dividend pays you to wait.

The Valuation Problem No One Should Ignore

Cheap is not the same as risk-free

HP is cheap for a reason. This is a low-growth hardware business with margin pressure, component-cost exposure, and a history of cyclical demand.

The stock deserves a low multiple if AI PCs fail to drive a meaningful mix upgrade.

But the valuation gives you room

At less than 10x earnings, the stock does not need a miracle. It needs stable revenue, margin recovery in fiscal 2027, and continued AI PC adoption.

That is achievable. The bar is low enough that even moderate execution can work.

What Needs To Happen Next

Keep AI PC mix rising

The most important signal is the AI PC shipment share. If AI PCs move from 44% of shipments toward management’s 60% to 70% target next fiscal year, the stock gets more support.

Defend margins through the memory spike

Memory costs are the biggest near-term issue. HP needs to prove that price increases, product redesign, supply chain moves, and premium mix can protect profitability.

Show fourth-quarter margins really are the bottom

Management expects margins to hit a low point in Q4 and improve into fiscal 2027. That has to happen. If margins keep falling beyond that, the value case weakens fast.

Keep returning cash

The dividend is part of the reason to own the stock. HP needs to protect that payout and keep capital returns disciplined while navigating the cost cycle.

The Risks You Should Take Seriously

Memory costs can stay higher for longer

AI data center demand is absorbing memory supply and pushing prices higher. If that pressure lasts longer than expected, HP’s margin recovery gets delayed.

PC demand can fade after the refresh cycle

The Windows 11 upgrade cycle helps now but refresh cycles do not last forever. HP needs AI PCs to become a durable mix upgrade, not just a one-time replacement wave.

This is still a mature hardware business

HP will not get valued like a software or semiconductor leader. The upside comes from earnings stability, income, and multiple repairs, not explosive growth.

How I’d Frame A Position

Buy the value, not the post-earnings pop

HP is a value buy with a visible catalyst. The AI PC cycle is real, the stock is cheap, and the dividend is attractive. But margin pressure is also real, so you do not need to chase strength.

If you already own HPQ, hold it. If you are not in, start small on weakness near the mid-$20s. Add only if AI PC mix keeps rising and management confirms margins are bottoming by Q4.

Bottom Line

HP is not a flashy AI winner. It is a cheap PC and printing stock with an AI PC tailwind, a Windows 11 refresh catalyst, and a real margin headwind from memory costs.

That makes the setup clear. The stock works if AI PCs keep lifting mix and margins bottom into fiscal 2027. It struggles if memory inflation overwhelms the demand recovery.

Action Recap

✅ What’s working: revenue beat, strong EPS beat, AI PCs at 44% of shipments, Windows 11 refresh demand, and a 4.7% dividend yield
✅ What to watch: AI PC shipment mix, memory costs, Q4 margin bottom, fiscal 2027 margin recovery, and dividend safety
⚠️ Big risk: rising memory costs eat the AI PC upside before margins can recover
🧭 Best mindset:Buy small on weakness. Hold if you own it. Add only when HP proves AI PC demand is durable and margins are bottoming.

That's our coverage for today; thanks for reading! Reply to this email with feedback or any tech stocks you want me to check out.

Best Regards,
—Noah Zelvis
Tech Stock Insider