Shares of HP Inc. (NYSE: HPQ) experienced a sharp decline in premarket trading on Thursday, August 27, 2026, as investors reacted to a significant drop in global personal computer shipments. The stock fell 10.62%, or $3.24, to $27.28, erasing approximately $2.96 billion in shareholder value. This plunge came on the heels of the company's fiscal third-quarter earnings report, which revealed a 16% year-over-year decline in PC unit shipments.
The market reaction underscores growing concerns about the sustainability of HP's recent revenue growth, which has been largely driven by price increases rather than volume expansion. While the company reported record quarterly revenue of $15.7 billion—a 12.5% increase from the prior year and well above the LSEG consensus of $14.38 billion—the underlying weakness in unit shipments has cast a shadow over its outlook.
Revenue Growth Masked by Price Hikes
HP's personal systems segment, which includes PCs and laptops, generated $11.8 billion in revenue, up 18% from a year earlier. However, this growth was almost entirely attributable to higher prices, as unit shipments fell 16%, with consumer units declining 19%. The segment's operating margin contracted to 4.6%, down from 5.2% in the previous quarter, as rising costs for memory and other components outpaced HP's price increases.
Chief Financial Officer Karen Parkhill acknowledged that elevated commodity costs would continue to pressure fourth-quarter revenue, which is expected to come in below typical seasonal trends. The company does not anticipate a rebound in personal systems margins before fiscal 2027.
Earnings Beat but Tariff Benefits Skew the Picture
On an adjusted basis, HP earned 83 cents per share in the fiscal third quarter, surpassing the consensus estimate of 69 cents. However, this figure included an 11-cent benefit from tariff refunds, which also contribute 19 cents to the company's updated full-year guidance of $3.19 to $3.29 per share. Without these one-time gains, the midpoint of the full-year outlook would be $3.05, significantly lower than the reported figure.
For the fourth quarter, HP projects adjusted earnings in the range of 69 to 79 cents per share, with a midpoint of 74 cents that beats the consensus estimate of 67 cents. But this guidance also factors in an estimated eight-cent benefit from a tariff refund, meaning the underlying midpoint would be 66 cents—below current market expectations.
Cash Flow and Capital Returns
Despite the operational challenges, HP generated $1.6 billion in free cash flow during the quarter, up from $0.8 billion in the previous quarter. The company returned $574 million to shareholders through dividends and share buybacks, and ended July with $4.2 billion in gross cash on hand.
Printing Segment Offers Little Respite
HP's printing division, which has historically provided a stable revenue stream, saw revenue decline 2% to $3.9 billion. Supplies revenue slipped 3%, and hardware unit sales were down 7%. However, the segment's operating margin remained robust at 18.1%, significantly higher than the PC segment's margin, offering some cushion against broader weakness.
Wall Street Cautious
Analysts have adopted a cautious stance on HP's stock. Seventeen analysts maintain a hold consensus with an average price target of $27.88, representing a modest 2.2% premium over the premarket price. On Thursday, Goldman Sachs raised its price target to $22, while UBS set a target of $28, reflecting divergent views on the company's prospects.
Risks and Outlook
The key risk for HP is whether it can offset ongoing memory cost inflation with further price increases, or if unit demand stabilizes. A continued erosion of margins would make the company's earnings outlook increasingly reliant on one-off tariff refunds, which are not sustainable. Investors will be closely watching the personal systems margin in the fourth quarter and whether HP can achieve year-over-year revenue growth excluding the effects of price inflation and tariff benefits.
As the PC market remains under pressure, HP's ability to navigate these headwinds will be critical in determining whether the stock can recover from Thursday's steep decline.
