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After initially slipping on lower-than-expected adjusted EPS in Q3 (Jul) and mild Q4 (Oct) earnings guidance, shares of HP Inc. (HPQ +3%) have made a full recovery, returning to levels reached before the market-wide correction in early August. The culprit behind HPQ's downbeat earnings and soft guidance was its Printing business, which continued to face soft demand, an unfavorable geographical mix, and an aggressive pricing environment. These issues are expected to persist over the near term, causing HPQ to moderate its expectations for Q4, projecting adjusted EPS of $0.89-0.99, the midpoint of which fell short of analyst expectations.

However, after digesting the information, investors became increasingly more accepting of HPQ's woes, mainly since they were almost wholly on the Printing side of its business, which has been dealing with turbulence for an extended period. Furthermore, HPQ is taking action to address Printing's problems. It sees an immediate opportunity to drive additional cost savings next quarter, which could help boost overall non-GAAP operating margins, which compressed by 70 bps yr/yr to 8.1% in Q3.

Meanwhile, what commanded more of the market's attention was how AI PCs have been performing and how demand is shaping up over the near term. On that note, HPQ had plenty of uplifting news.

• HPQ registered a 2.4% bump in overall revenue yr/yr to $13.52 bln, exceeding analyst expectations and returning to positive yr/yr growth for the first time in nine quarters, entirely due to Personal Systems (PS), which climbed by 5%. The dichotomy between Consumer PS and Commercial PS remained, with consumer reporting a 1% decline in revs while commercial jumped by 8%. Total units shipped edged 1% higher due to Commercial PS, which recorded a 6% improvement compared to a 6% drop in Consumer PS units.
• While Commercial PS is driving the ongoing PC recovery, aided by organizations' need to refresh their aging PC lineups, the decline in Consumer PS sales was nicely improved from -3% last quarter, illustrating signs of stabilization. Supporting Consumer PS's steady recovery has been early demand for AI PCs.
• AI PC shipments are ramping, and HPQ mentioned that initial reactions have thus far been overwhelmingly positive. Over a longer timeframe, HPQ anticipates next-gen AI PCs to represent around 50% of total shipments in 2027. At the same time, these AI PCs are expected to drive an average selling price increase between 5-10%.

Despite being in the initial rollout stage, AI PCs are already positively impacting the broader PC recovery. Lingering headwinds in Consumer PS remain a concern. However, demand may pick up over the next several quarters, particularly as Microsoft (MSFT) begins to release additional AI-related features for Windows 11. As consumer electronics retailer Best Buy (BBY) noted today, it believes the impact of AI is merely in the beginning stages, especially since a critical AI capability from MSFT has yet to be released. Finally, HPQ's energetic tone surrounding AI PCs is a good sign ahead of Dell's (DELL) JulQ report scheduled for today after the close.