HP joins the AI race as revenue sinks to a multi-year low

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Written on May 30, 2023

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HP reports lowest quarterly revenue since the start of the pandemic.
The multinational expects to launch new AI-focused PCs next year.
HP shares are still up about 10% versus the start of the year 2023.

HP Inc (NYSE: HPQ) lost about 5.0% in extended hours on Tuesday after reporting lowest quarterly revenue since the start of the COVID pandemic.

HP shares down on PC slowdown

Much of the weakness in the recently concluded quarter was related to its PC business that saw sales tank a more than expected 29%.

In an interview with Barron’s, though, CEO Enrique Lores said the company has done well in terms of lowering excess channel inventory.

We’re delivering on what we said. We were clear that we’d focus on things we can control – and invest in the business to drive innovation and long-term growth.

Last November, the multinational said it will cut between 4,000 and 6,000 jobs in three years. HP shares are still up 10% for the year.

HP Inc to launch an AI-focused PC

On the plus side, HP confirmed today that it will capitalise on rapid growth in the artificial intelligence market.

The California-based company is building a new PC architecture that won’t depend on cloud computing for AI workloads. Running them locally, it added, will improve security and reduce latency. CEO Lores added:

If you’re a small business, you will want to use artificial intelligence to leverage private data.

HP expects the first batch of these AI-focused personal computers to be launched in 2024. Wall Street currently has a consensus “hold” rating on HP shares.

Notable figures in HP Q2 earnings report

Earned $1.1 billion versus the year-ago $1.0 billion
Per-share earnings also climbed from 94 cents to $1.07
Adjusted EPS printed at 80 cents as per the press release
Revenue tanked 21.7% year-on-year to $12.9 billion
Consensus was 76 cents a share on $13.1 billion revenue
Adjusted operating margin narrowed 10 bps to 8.7%

In April, legendary investor Warren Buffett was reported to have bought 121 million HP shares (source).

HP Inc expects the market to improve in H2

Another good news for investors came in the form of management’s confidence in the PC market that they said will improve in the back half of 2023.

For the full year, HP now forecasts up to $3.50 of adjusted EPS, including 81 cents to 91 cents it expects to earn in the current quarter. Analysts were at 85 cents of per-share earnings (adjusted) for Q3.

The multinational tech company continues to see its free cash flow to fall between $3.0 billion and $3.5 billion this year. In the earnings press release, CEO Enrique Lores said: