HPQ's Strategic Shifts Amid Tariff Headwinds: Is Now the Time to Buy?

The global tech sector is navigating a storm of geopolitical tension and shifting trade policies, but HP Inc. (HPQ) is positioning itself as a survivor—and perhaps even a beneficiary—of the chaos. While tariffs have dented near-term profits, the company's aggressive supply chain reconfiguration, AI-driven product innovation, and cost-cutting initiatives are creating a compelling case for long-term investors. With shares trading at a discount and a dividend yield of 4.26%, the question is: Is HPQ's current turbulence masking a buying opportunity?

The Supply Chain Pivot: Mitigating Tariff Risks

HP's most immediate challenge—and opportunity—lies in its rapid shift away from China-centric manufacturing. By mid-2025, nearly all products sold in North America will be produced in Vietnam, Thailand, India, Mexico, or the U.S. This move, accelerated in response to trade uncertainties, aims to insulate HP from escalating tariffs. While the transition has added short-term costs—dragging Q2 operating margins to 7.3% (down from 7.4% in 2024)—management insists the long-term payoff is clear.

The Future Ready cost savings program, targeting $2 billion in annualized savings by year-end 2025, is central to offsetting these pressures. By combining supply chain rebalancing with operational discipline, HP aims to fully offset tariff-driven costs by late 2025, setting the stage for margin recovery.

AI PCs: The Growth Engine Ignites

While supply chain adjustments address the defensive side of HP's strategy, its AI-enabled PCs (AIPCs) are the offensive play. By year-end, AIPCs are projected to account for over 25% of HP's PC shipments, with pricing 10–20% higher than standard models. This mix shift isn't just about premium pricing; it's a bet on the “future of work,” where AI integration becomes table stakes for enterprises and consumers alike.

The math is compelling: every percentage point increase in AIPC adoption could boost HP's average selling prices (ASPs) by 1–2%, directly improving gross margins. With competitors like Dell and Lenovo also racing to AI-enabled products, HP's early execution here could carve out a sustainable advantage.

Valuation: A Bargain with a Dividend Buffer

HP's stock has taken a hit in 2025, falling 12.6% in aftermarket trading after Q2 results. But at a P/E ratio of 9.81—a discount to its five-year average of 14.2—the stock appears undervalued relative to its restructuring potential.

Meanwhile, the 4.26% dividend yield offers a cushion against near-term volatility. While HP lowered full-year 2025 non-GAAP EPS guidance to $3.00–$3.30 (down from prior expectations), the midpoint of $3.15 still implies a forward P/E of just 7.56, assuming current prices hold.

Risks on the Radar

HP isn't without risks. Further tariff hikes, supply chain execution delays, and weak demand in key markets like China and North America could prolong margin pain. The AI PC strategy also hinges on customer adoption rates—a misstep here could leave premium-priced inventory stranded.

Why Now Could Be the Time to Buy

Despite these headwinds, HPQ's current valuation and strategic momentum suggest a favorable risk-reward profile:

1. Undervalued on Margins: At 9.8x forward earnings, the stock reflects pessimism about tariffs and margins. If HP delivers on its 2025 margin-recovery targets, shares could rebound sharply.
2. AI-Driven Growth: The AIPC opportunity is a multiyear tailwind, and HP's early leadership in this space could pay dividends for years.
3. Dividend Discipline: The 4.26% yield isn't just a payout—it signals management's confidence in cash flow stability.

Conclusion: A Long-Term Call for Resilience

HPQ isn't a “quick win.” Near-term earnings will likely remain pressured as supply chain shifts and tariffs play out. But for investors with a 3–5 year horizon, the company's strategic moves—diversifying production, betting on AI, and slashing costs—position it to emerge stronger. At current prices, HPQ offers a rare blend of value, yield, and growth catalysts. For the bold, now could be the time to buy.

Investor takeaway: HPQ's discounted valuation and structural advantages in AI and supply chain resilience make it a compelling long-term buy despite near-term turbulence.