HP Inc.'s Q2 Earnings Signal a Turnaround: Can Cost Cuts and Tech Demand Fuel a Rally?

The tech sector has been a rollercoaster in 2025, but HP Inc. (HPQ) just handed investors a blueprint for resilience. Despite a post-earnings selloff, the printer and PC giant's Q2 results reveal a company executing on its most critical priorities: shrinking costs, diversifying supply chains, and leaning into commercial demand. Let's dig into the numbers to see why this could be a buying opportunity.

Key Takeaways from HP's Q2 2025 Earnings

1. Revenue Growth Held Steady: Net revenue rose 3.3% to $13.2 billion, beating estimates.
2. Commercial Strength Shines: The Personal Systems segment (PCs and workstations) surged 9% in commercial sales, offsetting weaker consumer demand.
3. Cost Cuts Are Underway: HP aims to fully offset U.S. tariff costs by Q4 2025, with manufacturing shifts to Vietnam, Thailand, and Mexico.
4. Free Cash Flow Struggles: A -$95 million FCF result underscores near-term pain, but management insists on a $2.6–$3.0 billion annual target.

Why the Revenue Beat Matters

HP's top line is growing in a market where many tech giants are flatlining. The $13.2 billion revenue print wasn't just about volume—it was about pricing power in commercial markets. Enterprises are still upgrading IT infrastructure, and HP's focus on rugged, secure devices for hybrid work environments is paying off.

The Cost Reduction Play: A Lifeline for Margins

Margins are HP's weak spot right now. GAAP EPS dropped 31%, but the bigger story is operational discipline. The company is:
- Moving production out of China to slash tariff exposure. By late June, nearly all North American products will be China-free.
- Trimming non-essential spending: Share repurchases dipped to $100 million, but this isn't a retreat—it's a strategic pivot to prioritize cash flow.

The Printing segment's 4% revenue decline is a drag, but here's the twist: HP is repositioning. It's pushing higher-margin supplies (inks/toners) and shifting to software-driven solutions like its “Future of Work” portfolio. This pivot could stabilize margins over time.

Free Cash Flow: A Near-Term Sacrifice, Long-Term Win?

HP's -$95 million FCF in Q2 was ugly, but it's a calculated move. The company is investing heavily in:
1. Manufacturing flexibility: $50M in leases and $183M in property upgrades to build new supply chains.
2. Shareholder returns: Dividends and buybacks totaled $373M, signaling confidence in long-term cash generation.

The Risks: Macro Headwinds and a Picky Market

Critics will point to the EPS miss and the 15% post-earnings selloff. But here's why this could be a buying opportunity:
- Valuation: HP trades at just 6.5x forward non-GAAP EPS, a historic discount. Even with lowered guidance, this is a fire sale price.
- Tariff Mitigation Timeline: If HP hits its Q4 cost-offset goal, margins could rebound sharply in 2026.
- Commercial Demand Stays Strong: Enterprises aren't cutting IT budgets—they're just being pickier. HP's focus on reliability and security keeps it top-of-mind.

Investor Takeaway: HPQ Is a Contrarian Buy

The market is pricing in gloom, but HP is doing the dirty work of restructuring for a post-tariff, post-pandemic world. The $2.7 billion in cash on hand gives it a cushion, and its $13.2B revenue beat proves demand is there—if you're in the right markets.

Action to Take: HPQ is trading at $22.50, near 52-week lows. Buy here for a 12–18 month horizon, targeting $30 if cost cuts and commercial growth accelerate. This isn't a “set it and forget it” stock—watch for Q3 FCF improvements and China-free manufacturing updates.

The takeaway? HP isn't just surviving—it's rebuilding. And in a tech sector starved for margin discipline, that's a recipe for a comeback.