Morgan Stanley rattles investors with bombshell HP stock verdict

Peace Longe

Mon, August 31, 2026 at 8:07 PM GMT+3 6 min read

HP Inc. (HPQ) is up almost 38% this year, and shareholders have every reason to feel good about that run.

Then Morgan Stanley showed up with a number that stopped the celebration cold.

The firm looked at HP's latest quarter, acknowledged the earnings beat, and still told clients the stock could lose roughly a third of its value from here.

HP is not the only stock seeing this split. Bank of America made a similar call before HP even reported.

For anyone holding HP or thinking about buying the dip after a strong year, the reasoning behind that call matters.

HP's revenue is growing, but Morgan Stanley doesn't think the profit will keep up. That gap is what the call is about.

Why Morgan Stanley kept HP stock at Underweight after the earnings beat

Morgan Stanley reiterated an Underweight rating on HP and lifted its price target to $19 from $17, in a Morgan Stanley research note shared with me.

Underweight is the firm's way of saying it expects the stock to trail its industry group over the next 12 to 18 months. It is the closest thing Morgan Stanley has to a "sell."

HP closed at $30.52 on Aug. 28, so a $19 target points to a more than 30% slide.

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The call comes from Erik Woodring, head of U.S. Technology Hardware Equity Research at Morgan Stanley, who has covered the hardware sector for years.

TipRanks data shows his ratings turn a profit around 59% of the time, so this is a calculated stance, not an impulsive call.

His argument is simple. HP's fiscal third-quarter revenue rose 12.5% to $15.7 billion, and the company beat earnings expectations.

However, the growth came from higher prices, not more units sold.

That distinction is the whole case, and it runs through every part of the note.

HP shares are up sharply in 2026, but Morgan Stanley says the profit picture is weaker than the sales figures suggest.Justin Sullivan / Getty Images

HP's PC business is selling fewer machines at higher prices

HP shipped 16% fewer PCs year over year in the July quarter, according to Morgan Stanley, and still grew that segment's revenue by charging more per machine.

Higher prices didn't just offset the drop in units. They pushed segment revenue higher.

It also helped lift HP's total company revenue, which includes Print alongside PCs, by 12.5% for the quarter.

That works until buyers push back.

Morgan Stanley expects double-digit unit declines to continue into fiscal 2027 as memory-driven price increases weigh on demand.

Here is the risk the firm flags for next year:

Unit sales keep falling as higher prices scare off buyers.
HP responds with promotions to win those buyers back.
Those discounts, plus rising component costs, squeeze profit margins.

HP's management expects PC margins to bottom out soon and recover through 2027. Morgan Stanley disagrees, and is openly positioning against that recovery.

The firm believes unit declines will get severe enough that HP is forced to cut prices again, right as component costs keep climbing.

Why AI PCs are not the rescue investors hoped for

HP has leaned hard on AI PCs, machines built to run artificial intelligence tasks on the device itself, and now says they are approaching half of its shipments.

Morgan Stanley is not convinced AI PCs change the demand picture.

The firm sees AI PCs as replacements for regular commercial PCs rather than a reason for companies to buy sooner or buy more.

In plain terms, a business that was going to buy a laptop anyway just buys an AI version instead. The total number of machines sold does not rise.

That view matters because a genuine upgrade wave would be the fastest way to break Morgan Stanley's bearish case. The firm is telling investors it does not see that wave yet.

Bank of America reached a similar conclusion before earnings, warning that HP's improving PC sales might not reach the bottom line.

Analyst Wamsi Mohan kept an Underperform rating and an $18 target in an earlier note.

The printing business adds a second margin problem

HP's other major segment is Imaging and Printing, and it faces its own pressure.

Morgan Stanley expects low-single-digit revenue declines there as demand for both hardware and supplies keeps shrinking.

Competition is the bigger issue. Japanese rivals, helped by a weak yen that makes their products cheaper abroad, are pushing prices down across the market.

That is expected to drag Print operating margins toward the low end of HP's 16% to 19% long-term target.

So HP now has margin pressure building in both of its main businesses at the same time.

That is the core of why the firm expects profit to fall next year, even as revenue holds up.

How the $19 target breaks down for HP shareholders

Morgan Stanley's $19 target rests on a 7x price-to-earnings multiple applied to projected fiscal 2027 earnings of $2.75 per share.

The price-to-earnings multiple is simply how many dollars investors will pay for each dollar of a company's annual profit.

A lower multiple means the market is paying less for the same earnings, usually because it expects those earnings to shrink.

That $2.75 estimate sits 9% below the Wall Street consensus of $3.02, which tells you how far Morgan Stanley is from the crowd.

The firm's base case assumes:

Revenue falls about 1% year over year in fiscal 2027.
Earnings per share drops roughly 16% year over year.
Rising memory and component costs do the damage.

Memory prices are the pressure point that connects HP to the wider market.

The same shortage hurting HP has been a windfall for memory makers like Micron (MU), which sells the chips HP has to buy.

What lifts one side of the trade squeezes the other.

What HP investors should watch before making a move

None of this guarantees HP falls to $19.

Morgan Stanley names its own risks, and they are worth tracking. A stronger-than-expected PC recovery, deeper corporate cost cuts, or aggressive stock buybacks could all support the shares and undermine the bearish case.

Practical steps for shareholders:

Watch the margins, not the revenue. Rising sales mean little if profit keeps reducing. Personal Systems and Print operating margins are the numbers that decide this call.
Track memory costs. A longer memory shortage would deepen HP's margin problem and validate Morgan Stanley's darkest scenario.
Weigh the yield against the risk. HP still pays a dividend near 4%, which cushions the wait but does not erase the downside Morgan Stanley sees.

This is not investment advice, and one bearish note is not a verdict. HP has beaten low expectations before.

HP's sales are holding up, but Morgan Stanley believes the profit behind those sales is heading lower.

That is why the firm is willing to sit at a $19 target while the rest of Wall Street waits for proof either way.

HP shareholders have earned real gains this year. Morgan Stanley is betting the next stretch looks nothing like the last one.

This story was originally published by TheStreet on Aug 31, 2026, where it first appeared in the Investing section. Add TheStreet as a Preferred Source by clicking here.