HP's Memory Cost Squeeze Hits Guidance, Reinforcing DeepValue Wait Thesis

What happened

HP Inc. has forecasted its FY2026 earnings at the low end of its $2.90-$3.20 non-GAAP EPS guidance, explicitly blaming a surge in memory chip prices for the pressure. This aligns precisely with the DeepValue report's identification of DRAM/NAND inflation as the dominant swing factor for HP's profitability, expected to impact margins in the second half of FY2026. HP's mitigation efforts, including price actions and a restructuring plan targeting ~$300M in FY2026 savings, are now under heightened scrutiny as external costs mount. The report warns that price elasticity risks could trigger demand destruction if HP fails to pass through costs without harming volume or mix, a concern amplified by this guidance update. Thus, the news validates the existing 'WAIT' rating, emphasizing the need for observable proof of execution amid persistent headwinds and interim leadership.

Implication

The guidance at the low end increases the probability of the bear scenario where FY2026 EPS could fall toward $2.50, pressuring the stock from its current depressed multiples. HP's ~$300M FY2026 savings target must now offset steeper cost headwinds, raising execution risk and making quarterly margin trends critical to monitor. Memory price tightness, as flagged in external indicators like TrendForce reports, suggests this pressure may persist, testing HP's pricing power and inventory management in coming quarters. Any deviation from the reaffirmed EPS framework under interim leadership could erode credibility and trigger further downside, given the stock's sensitivity to earnings durability. Therefore, investors should wait for concrete evidence from Q1 results and beyond before considering entry, aligning with the DeepValue assessment that the setup remains an execution-underwrite rather than a value play.

Thesis delta

The news does not shift the core investment thesis but confirms and intensifies the memory cost risk highlighted in the DeepValue report. It slightly increases the likelihood of the bear scenario where EPS falls below guidance, reinforcing the need to monitor price elasticity and restructuring execution over the next 6-9 months. No immediate rating change is warranted, but vigilance on quarterly checkpoints is now more critical.