HP Inc.: Navigating Margin Pressures and AI-Powered Growth

HP Inc., a leading technology company, faces margin pressures in its Personal Systems (PS) segment due to competitive pricing and higher memory costs. Despite these challenges, analysts remain optimistic about the company's long-term prospects, particularly in the area of artificial intelligence (AI) personal computers (PCs). As the world transitions towards more advanced AI capabilities, HP's offerings in this space are poised to drive significant growth in 2025.

In the fourth quarter of fiscal 2024, HP's PS segment revenue came in at $9.6 billion, slightly below consensus estimates. Operating margins in the PS segment fell to 8.5% from 8.9% in the prior-year period. However, the print segment performed well, generating $4.5 billion in revenue and surpassing expectations. Print margins improved to 19.6% in the fourth quarter, exceeding internal and external forecasts.



Analysts like Samik Chatterjee of JP Morgan and Michael Ng of Goldman Sachs maintain positive outlooks on HP's prospects, emphasizing the growth potential of AI PCs in 2025. Chatterjee highlights HP's near-term challenges and opportunities in the PS and print segments, while Ng raises his 12-month price target based on improved earnings estimates.

HP's print margins are expected to remain at the higher end of the 16% - 19% range in fiscal 2025. Meanwhile, PS margins are expected to climb to the upper half of the 5% - 7% range, aided by improved pricing strategies and volume leverage. Enterprise PC replacement cycles, supported by Windows 10’s end-of-life in 2025, and increased AI PC adoption are long-term growth drivers.



In conclusion, while HP faces margin pressures in the near term, analysts remain optimistic about the company's long-term growth prospects, particularly in the area of AI-powered PCs. As the demand for AI capabilities continues to grow, HP is well-positioned to capitalize on this emerging trend. The company's supply chain resilience and enterprise PC replacement cycles support its ability to navigate potential tariff escalations and maintain a competitive edge in the marketplace. Investors should closely monitor HP's progress in AI computing and its potential to drive long-term growth.