Can HP (HPQ) Stay Reasonable After Its AI Push And Earnings Beat?

HP stock is back in focus after recent AI partnership news and earnings, yet the valuation signals point to a different tension, as the shares have delivered a decline of about 16% over three years while both the Discounted Cash Flow (DCF) intrinsic value estimate and earnings based multiples currently screen the stock as undervalued.

• Over the past three years, HP has delivered a decline of about 16%, which means long term holders have not been rewarded despite more recent positive headlines.
• The partnership with OpenAI and management's focus on AI enabled devices and experiences can support expectations for future cash flows. However, execution risk around cost reductions and integrating AI across the business may limit how much of that potential is eventually realised.
• HP currently scores 5 out of 6 on the value checks, which suggests the broader set of valuation measures leans toward the stock being cheap rather than fully priced.

The issue now is whether the market has already adjusted enough for HP's AI push and earnings progress, or if the current discount to intrinsic value still leaves meaningful upside on the table.

Find out why HP's 2.5% return over the last year is lagging behind its peers.

Does HP Look Undervalued on Cash Flow?

The Discounted Cash Flow (DCF) model estimates what HP is worth today based on the cash it is expected to generate in the future. For HP, the latest twelve month free cash flow sits at about $3.8b, and the projection set assumes cash flows that broadly hold up rather than aggressive expansion, which fits a mature hardware and services business.

On those assumptions, the DCF model points to an intrinsic value of about $41.99 per share, which implies the stock screens roughly 42.5% undervalued versus the current market price. Despite the recent OpenAI partnership and stronger earnings giving HP some momentum, the share price still sits well below the level implied by these cash flows.

Overall, HP stock currently screens as undervalued relative to the intrinsic value suggested by this DCF analysis.

Our Discounted Cash Flow (DCF) analysis suggests HP is undervalued by 42.5%. Track this in your watchlist or portfolio, or discover 49 more high quality undervalued stocks.

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for HP.

Is HP a Bargain on Earnings?

The P/E ratio suits HP because earnings remain a key anchor for how investors look at a mature hardware and services business. HP currently trades on a P/E of about 8.6x, which is well below the tech industry average of roughly 23.2x and also below the broader peer group average of around 44.8x.

A fair P/E multiple for HP, based on its size, margins, sector and risk profile, is estimated at about 25.7x. That is roughly three times the current P/E, which indicates that the stock price does not fully reflect the earnings power implied by this framework. This gap is consistent with the earlier DCF work, which also suggested HP is trading at a discount to its estimated intrinsic value.

On this earnings multiple, HP stock appears undervalued compared with what the fair P/E suggests would be a more typical level.

See what the numbers say about this price — find out in our valuation breakdown.

The HP Narrative: What Would Justify Today's Price?

Simply Wall St Narratives take the valuation puzzle around HP and tie it to clear scenarios for HP's future growth, margins and earnings, so you can see what would need to be true for the stock to be worth materially more or less than today's price on the Community page. Rather than relying on a single multiple or DCF output, each narrative sets out the assumptions behind its fair value so you can compare them with how HP's actual results evolve over time.

The HP community is sharply split, with one group focused on AI and cost discipline as a source of upside while another worries about margins and demand.

Bull case: 18% undervalued

"HP's acquisition of Humane and integration of their AI-powered platform CosmOS is expected to support the development of an intelligent ecosystem across HP's devices, which could contribute to an increase in revenue and net margins as the company positions itself in workplace technology innovation…"

Read the full Bull Case to see why HP could be undervalued

Bear case: 34% overvalued

"With rising commodity costs negatively impacting gross margins and the time required for cost reduction and pricing actions to fully offset these headwinds, there is a risk to achieving anticipated net earnings improvements…"

Read the full Bear Case to see why HP could be overvalued

Do you think there's more to the story for HP? Head over to our Community to see what others are saying!

The Bottom Line

For HP, both the Discounted Cash Flow (DCF) intrinsic value estimate and the earnings multiple view currently point in the same direction, suggesting the stock trades at a discount while broader valuation checks also look supportive. The real question from here is whether HP can turn its AI partnerships and product roadmap into durable cash flows without eroding margins through missteps on costs or execution. That tension, between discounted pricing and execution risk, is what will likely decide whether today’s valuation gap proves to be an opportunity or a value trap.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com