HP Raises Its 2026 Outlook as AI PC Revenue Growth Meets Pressure From Memory Costs

PALO ALTO, Calif. — HP reported fiscal third-quarter revenue of $15.7 billion, up 12.5% from a year earlier, and raised its full-year earnings and free-cash-flow outlook. The results show stronger demand for premium and AI-oriented personal computers, but they also expose the margin pressure created by expensive memory components, lower unit shipments and a pricing environment that is not fully absorbing rising costs.

GAAP diluted earnings were 71 cents a share, down 11.3% year over year, while non-GAAP earnings rose 10.7% to 83 cents. Both figures included an 11-cent favorable impact from tariff refunds, according to HP’s August 26 release. The company generated $1.7 billion in operating cash flow and $1.6 billion in free cash flow during the quarter, giving management room to return $600 million through dividends and share repurchases.

Personal Systems produced $11.8 billion in revenue, an 18% increase, while Printing revenue declined 2% to $3.9 billion. Reuters reported that PC unit shipments fell 16% even as the segment’s revenue climbed, reflecting a mix tilted toward higher-priced systems. That pattern can support sales growth, but it raises a central question for investors: whether premium pricing can keep pace with component inflation without weakening demand.

The pressure is most visible in margins. Reuters said the Personal Systems operating margin narrowed to 4.6% from 5.2% in the prior quarter because commodity and memory costs rose faster than HP’s price increases. Global investment in artificial-intelligence data centers has tightened supplies of memory products, creating a cost problem for device makers at the same time they are marketing a new generation of AI-capable PCs.

HP increased its fiscal 2026 non-GAAP earnings guidance to a range of $3.19 to $3.29 a share, compared with its earlier range of $2.90 to $3.10. It now expects free cash flow of $3.0 billion to $3.2 billion. The company’s fourth-quarter non-GAAP earnings guidance of 69 cents to 79 cents includes an expected eight-cent benefit from tariff refunds.

The improved annual forecast is encouraging, but investors reacted to the weaker operational details. HP shares fell sharply in extended trading after the release, according to Reuters, as the market focused on shipment declines and the outlook for Personal Systems margins. That response illustrates how an earnings beat can coexist with concern about the quality and durability of the growth underneath it.

Management expects fourth-quarter revenue to grow from a year earlier, supported by pricing actions, gains in premium categories and deeper adoption of AI PCs. Chief Financial Officer Karen Parkhill also cautioned that commodity-driven price increases would produce below-seasonal revenue performance in the quarter. HP expects Personal Systems margins to remain under pressure before recovering in fiscal 2027.

The AI PC category is central to the strategy. Manufacturers are adding processors and software designed to run more artificial-intelligence workloads directly on devices, promising better privacy, speed and offline capability. For HP, those features can support higher average selling prices and refresh demand. The commercial challenge is proving that customers receive enough everyday value to justify upgrading while memory and other components remain costly.

Printing remains a second area to watch. Its revenue decline was modest compared with the growth in PCs, but the business has historically contributed significant profit and cash. Changes in home and office printing, supplies usage and corporate purchasing can therefore influence HP’s results even when Personal Systems receives most of the attention. A durable earnings story requires both divisions to manage costs and protect margins.

The quarter leaves HP with stronger revenue, a higher outlook and substantial cash generation, but not a simple victory. Premium products and tariff refunds helped lift the headline numbers, while shipment contraction and input costs limited the benefit. The next two quarters will show whether AI PCs can broaden beyond early adopters and whether pricing, supply and product mix can restore margins without slowing the company’s sales momentum.

Investors should also separate temporary benefits from operating progress. Tariff refunds improved the quarter and the annual forecast, but the longer-term case rests on product demand, cost discipline and the company’s ability to defend profit on every device sold.