HPQ's Q2 Earnings: A Crucible for Value Investors

The drumbeat of HP Inc.’s (HPQ) Q2 earnings release on May 28, 2025, is a call to arms for value investors. Here’s why this could be the moment to act: the company is at a crossroads of margin pressures, bold AI-driven innovation, and aggressive cost-saving moves. Let’s dissect the data and the drama.

The Margin Squeeze: A Necessary Pain

HPQ’s Q2 earnings are expected to show a 2.4% EPS decline to $0.80, despite a 4.3% revenue rise to $13.36B. But here’s the kicker: this isn’t just a temporary stumble. Margins have been contracting for years. GAAP operating margins fell to 6.3% in Q1 2025 from 7.1% in 2024, while non-GAAP margins dropped to 7.3% from 8.4%.

The culprit? A brutal mix of inflation, supply chain bottlenecks, and aggressive pricing in legacy segments like printing. But here’s the twist: HPQ isn’t just taking it lying down. Its “Future Ready” plan aims to slash structural costs by $1.9B annually by year-end, up from $1.6B. That’s a $300M boost in efficiency—no small feat.

AI: The Silver Bullet for Growth

HPQ isn’t just cutting costs; it’s betting on the future. The company’s AI-powered PCs—like the HP EliteBook 8 Series with Neural Processing Units (NPUs)—are designed to outperform rivals with 224% better power efficiency and 43x faster AI image generation. These aren’t niche products: they’re targeting enterprises and gamers, two high-margin segments.

Meanwhile, HP’s quantum-resistant printers (e.g., the HP LaserJet Enterprise 8000 Series) are a game-changer. They’re the first devices to shield against quantum computing-era cyberattacks, making them indispensable for regulated industries.

This isn’t just R&D fluff—it’s a strategic pivot. AI isn’t a side project; it’s the linchpin of HPQ’s shift from commoditized hardware to intelligent, secure ecosystems.

The Cost-Saving Blitz: A Lifeline for Margins

HPQ’s $1.9B cost-savings target isn’t just about slashing jobs. The company is reengineering its supply chain, aiming to source 90% of North American sales outside China by 2025. That’s a direct shot at tariff-related headwinds. Plus, the “Workforce Experience Platform (WXP)” automates IT tasks, cutting labor costs while boosting productivity.

Even better? These moves are already paying off. Q1 free cash flow surged 180% YoY to $100M, and the company is on track to hit its $3.2–3.6B annual target.

The Near-Term Risks? Playable

The Zacks Rank #4 (Sell) and a -1.25% Earnings ESP suggest skepticism. But here’s why it’s overblown:
- HPQ has beaten EPS only once in the past four quarters, but that’s because it’s been reinvesting in growth.
- The Street’s Q2 EPS estimate of $0.80 is a low bar. If HPQ hits or beats it, the stock could soar.

Why Now is the Time to Buy

This is a classic value trap turnabout. HPQ’s stock trades at just 7.5x forward earnings, near decade lows. Meanwhile, its dividend (yielding 2.1%) and shareholder buybacks ($100M in Q1) signal confidence.

The Q2 earnings call will be the crucible: management must convince investors that AI is a revenue driver, not a cost sink. If they do, the stock could rocket. Even if they stumble, the $1.9B cost cuts and supply chain shifts make HPQ a low-risk, high-reward bet for 2025.

Action Plan: Dive In—But Stay Alert

• Buy now if you believe HPQ can execute its AI+cost-cutting strategy.
• Wait for the earnings pop if you’re cautious.
• Avoid only if you think AI in PCs is a fad—it’s not.

The verdict? HPQ is a once-in-a-cycle opportunity. The margin pain is real, but the AI future is here. This is a stock to buy on the dip—and hold for the long haul.

The clock is ticking. May 28 will decide if this is the turning point—or just another bump in the road. My bet? This is the road to riches.