HPQ Downgraded: Memory Costs Squeeze PC and Printer Margins

HP Inc. shares faced renewed pressure after an analyst downgraded the stock, citing rising memory costs that are squeezing margins in the PC and printer business. The note, published on Seeking Alpha, moved HPQ to a sell-equivalent rating from a previous hold.

Memory costs have been climbing through 2026, driven by supply constraints and AI-related demand for high-bandwidth memory. That hits HP's core PC segment directly, where component costs are a large share of the bill of materials. The analyst argued that HP has limited ability to pass those costs through to consumers in a competitive market, which compresses gross margins.

The memory upcycle has been driven by supply discipline among the major DRAM and NAND manufacturers, as well as surging demand from AI data centers for HBM and high-capacity SSDs. That has tightened supply for the PC and mobile segments, pushing up prices. The analyst noted that the cycle could persist through 2027 if AI demand continues to absorb manufacturing capacity.

The printer business, traditionally a high-margin cash cow, is also facing headwinds. Consumables revenue has been declining. Remote work patterns have stabilized and office print volumes stay below pre-pandemic levels. The combination of rising input costs and softening demand creates a margin squeeze that the analyst sees as structural, not cyclical.

HP has been cutting costs and restructuring. The analyst said those efforts may not be enough to offset the memory-cost headwind. The stock has already priced in some of the bad news. The risk skew remains to the downside if memory costs keep rising through the second half.

The PC market has been in a slow recovery after the post-pandemic slump, with enterprise refresh cycles providing some support. Consumer demand remains tepid. The analyst argued that HP's exposure to the consumer segment leaves it more vulnerable to margin compression than peers focused on commercial and gaming.

HP has been trying to differentiate through services and subscription models, including its HP+ and Instant Ink programs. The analyst said those initiatives are positive but too small to offset the margin pressure from the core hardware business. The bulk of HP's revenue and profit still comes from PC and printer hardware, where memory costs are a direct input.

The downgrade comes at a time when the broader technology sector is grappling with rising input costs across the board. Semiconductor prices, logistics, and labor have all increased. Memory is the most acute for PC makers. HP's competitors, including Dell and Lenovo, face similar pressures. HP's higher exposure to the consumer and SMB segments makes it more sensitive to cost pass-through constraints.

The analyst had previously maintained a hold rating, arguing that HP's restructuring and share buybacks provided a floor. The downgrade reflects a change in view. Memory costs have accelerated beyond what the analyst considered manageable. The new rating implies that the risk-reward is now skewed to the downside, even after the stock's decline.

HP's balance sheet remains a relative strength. The company generates solid free cash flow and has been using it to reduce debt and buy back shares. The analyst acknowledged that the balance sheet provides a buffer. He said it does not change the margin trajectory. In a prolonged memory upcycle, even a strong balance sheet cannot prevent earnings erosion.

AlphaScala's proprietary score for HPQ stands at 49 out of 100, labeled Mixed, reflecting the stock's uncertain fundamental setup. The score captures the tension between a still-healthy balance sheet and the deteriorating margin outlook. For more details on HPQ's fundamentals, see the HPQ stock page.

The analyst said the key variable to watch is memory pricing. If DRAM and NAND prices stabilize or decline in the second half, HP's margins could recover faster than expected. Conversely, if the upcycle extends into 2027, the margin pressure will persist and likely lead to further earnings downgrades. The next concrete catalyst is HP's fiscal third-quarter earnings, expected in late August. The analyst said that print will determine whether the memory-cost pressure is accelerating or stabilizing.