HP Stock Crashed on Weak Outlook: Here Are the Key Takeaways

HP Inc. (NYSE: HPQ) crashed yesterday following its fiscal Q4 2024 earnings release as the company’s guidance spooked investors. Rival PC maker Dell also crashed following its earnings as markets get wary about the sales trajectory of AI PCs.

Looking at the full-year numbers, HP’s revenues were flat as compared to the previous fiscal year while its EPS rose 3%. Notably, the PC market was quite challenged in the first half of the year but we saw some recovery in the back half.

Citing a recent Canalys report, HP said that it has the highest market share in Windows AI PC. The company added that it intends to hold on to that position through innovation.

During the earnings call, HP CEO Enrique Lores said, “We expect AI PC penetration to continue to further strengthen our commercial leadership. And since the Windows 11 refresh has ramped slower than previous industry transitions, we expect to see the impact of the upgrade to be more pronounced in 2025.”

HP Outlook Spooked Investors

Meanwhile, HP’s outlook spooked investors and it forecast adjusted EPS of 73 cents at the midpoint for the fiscal first quarter which fell short of the 85 cents that analysts were modelling. It expects the overall PC market to grow at a faster pace in 2025 as compared to 2024 “fueled by multiple catalysts for refresh including AI.” It however expects the print market to witness a single-digit decline. Notably, the print market has now been challenged for years and while HP’s Print segment posted a YoY rise in revenues in fiscal Q4, it was the first time since fiscal 2021 that the segment registered a growth.

Commenting further on its 2025 guidance, HP said, “We expect revenue for both personal systems and print to perform at least in line with the respective market. We have significant opportunities to accelerate in our key growth areas, especially in commercial, where the market is growing faster than consumer.”

PC Stocks Outperformed in 2024

Notably, PC stocks including HP and Dell have outperformed in 2024 amid expectations of a PC refresh cycle led by AI PCs. However, that theme hasn’t played out as expected and while PC sales have recovered from the bottom the recovery has been quite slow. In his note, Barclays analyst Tim Long said that the “coast is not clear” for HP for now.

“Print segment continues to experience soft demand and aggressive pricing as Japanese competitors are taking advantage of a weaker Yen,” said Long in his note. He added, “Macro should also push out the PC refresh activity as our recent PC checks are mixed. Consumer PC continues to be under pressure despite commercial PC faring better across the industry. We are also skeptical on AI PC and the Windows end-of-life moving the dial on financials in the near term.”

However, JPMorgan wasn’t too perturbed and maintained its overweight rating on the stock. “The challenging near-term fundamentals for the PC market are already well understood, although HPQ is facing greater headwinds in relation to competitive pricing dynamics in the market as it attempts to pass through pricing to recover higher memory [chip] costs,” it said in its note.

HP Expects Sales of AI PCs to Rise

In the fiscal Q4 of 2024, 15% of HP’s shipments came from AI PCs and the company expects the number to rise to 25% in 2025. The management reiterated its view that it expects the average selling prices of AI PCs to be higher than legacy PCs.

In the fiscal year 2025, the company expects to post an adjusted EPS between $3.45-$3.75. “We are taking pricing and cost actions to offset some of the margin headwinds in the personal systems and that’s going to have a more significant impact in the back half,” said HP. It forecast free cash flows between $3.2 billion-$3.6 billion and said that it is committed to returning all of its free cash flows to investors through dividends and share buybacks.

Notably, according to IDC, HP held a 19.7% global market share in the PC industry in Q3 which was 50 basis points higher than the corresponding quarter last year. It estimates that the PC industry shrunk by 2.4% in the quarter. “After two quarters of mild growth, the market is taking a breather before going into the year-end buying period,” said, Byran Ma vice president of IDC’s Worldwide Device Trackers.

Ma added, “Downside risks remain in the current geopolitical environment, but we think there is enough upside going into next year to lift the market into modest single-digit growth.”

IDC however sees a slower ramp-up to AI PCs, and research vice president of devices and displays, Linn Huang said, “While we expect AI to reach ubiquity at some point at the end of this decade, the ramp up towards mass market will take longer than expected, well into 2026.”

Trump’s Tariff Threat Is a Headwind for HP

The question about president-elect Donald Trump imposing tariffs on China also popped up during HP’s fiscal Q4 earnings call. Lores responded by saying that the company is “willing to collaborate with the new administration to reach the best solution for both our customers and our shareholders.”

He added that HP has built factories across the world and emphasized, “So today, we are in a much stronger position than we were three years ago and we think that compared to other companies in our industry.”

Notably, the bulk of products that HP sells in the US are sourced from outside the country but the management did not disclose the percentage breakup by different countries and dodged the question on imports from Mexico – a country that Trump has vowed to slap with tariffs along with China and Canada.

Markets meanwhile gave a thumbs down to Dell and HP’s earnings and both shares fell in double digits. The road to recovery for PC makers has been full of potholes and the geopolitical uncertainty over Trump’s tariffs is only making the outlook murkier.