HP's Pivot: Can Strategic Shifts Salvage Stock Performance?

The tech sector's latest battleground is not just about innovation—it's about survival amid geopolitical storms. For HP Inc., the $54 billion global tech giant, tariffs and supply chain headwinds have become existential challenges. Yet, the company's Q2 2025 results reveal both vulnerability and resolve. With earnings missing forecasts and shares plummeting 15% post-report, investors are asking: Can HP's aggressive restructuring and production relocations turn the tide? Or is the stock still too risky to buy?

The Tariff Tsunami and HP's Defensive Maneuvers
HP's Q2 results underscore the harsh reality of doing business in a fragmented world. The company reported a 10% EPS miss, with tariffs slicing 100 basis points off operating margins. The culprit? U.S. duties on Chinese imports, which added $0.12 to per-share costs. To counter this, HP has embarked on a radical reshaping of its supply chain. By June 2025, over 90% of North American sales will come from factories in Vietnam, Thailand, India, Mexico, and the U.S.—a shift that promises to slash tariff exposure but demands immediate cash outflows.

The financial toll is clear: Q2 free cash flow turned negative due to inventory build-ups, and the company now expects full tariff mitigation only by year-end. Yet, HP's “Future Ready” restructuring program—targeting $1.9 billion in annual savings—offers hope. By trimming costs through automation, portfolio optimization, and workforce reductions, HP aims to offset tariff blows while fueling growth in premium AI PCs and print solutions.

The Profitability Crossroads
HP's strategy hinges on two critical pivots: pricing power and margin recovery. In Q2, the company raised prices on select products and shifted sales toward higher-margin commercial PCs (up 9% year-over-year). Its AI-driven ZBook workstation line, now 15% of PC sales, commands 30% gross margins versus 18% for standard PCs.

But execution remains uncertain. The Print division—a cash cow—saw revenue drop 4%, signaling weak consumer demand. Meanwhile, the stock's 12.6% post-earnings plunge to $23.77 reflects investor skepticism about HP's ability to stabilize margins. The company's P/E ratio of 9.81 and 4.26% dividend yield now present a tantalizing entry point—if the turnaround materializes.

Why Now Could Be the Bottom—Or a Trap
The case for buying HP today rests on three pillars:
1. Valuation Discount: At $25.8 billion market cap, HP trades at a 35% discount to its 2024 highs. With $3.4 billion in cash and a conservative debt load, it has room to maneuver.
2. Strategic Momentum: The AI PC market is booming, with HP's Windows 11 and AI-integrated devices capturing 25% of commercial sales. Its new Workforce Experience Platform, designed for hybrid办公 environments, could lock in enterprise contracts.
3. Tariff Timeline: By Q4, HP expects full tariff mitigation to boost margins by 200 basis points. If achieved, this could push 2025 EPS to the upper end of its $3.30 guidance.

Yet risks loom large. A delayed supply chain pivot could prolong margin pain, while competitors like Dell and Lenovo might undercut pricing in a slowing PC market. Geopolitical tensions could also reignite, complicating manufacturing shifts.

Investor Playbook: Buy the Dip, but Set Traps
For aggressive investors, HP's valuation and strategic bets make it a compelling “value” play. The dividend provides a 4.26% yield cushion, while AI and commercial PC tailwinds offer long-term upside. A 12-month price target of $32—factoring in margin recovery and multiple expansion—suggests 28% upside.

Historical performance, however, underscores caution. Backtests from 2020 to 2025 show that buying HPQ on an earnings miss led to an average loss of 4.02% by the next report, with maximum drawdowns exceeding 17%. These results highlight the risks of chasing the stock during earnings disappointments, even at current discounts.

Backtest the performance of HPQ when buying on the day of a quarterly earnings miss and holding until the next earnings announcement, from 2020 to 2025.

Thus, cautious investors should set strict exit rules. A breach below $20 would signal a failure of restructuring efforts, while a sustained rise above $28 could validate the turnaround.

In the end, HP's journey mirrors the tech sector's broader struggle: adapt or perish. For investors willing to bet on HP's execution, the current dip may be the cheapest entry in years. But as the old adage goes, “Hope is not a strategy”—and HP needs to prove it can turn hope into hard numbers by year-end.

Recommendation: Buy HPQ at current levels, targeting $32 by mid-2026. Set a stop-loss at $18.50 and a trailing stop once the $28 resistance is broken.