Wall Street Breakfast Podcast: HP Downsizes To Power Up

HP reported adjusted EPS of $0.93 on revenue of $14.64B (+4.2% YoY), slightly beating estimates, but guided Q1 FY25 adjusted EPS of $0.73–$0.81 (midpoint $0.77) below the $0.78 consensus and announced up to 6,000 job cuts after returning $1.9B to shareholders. Separately, CMS announced Medicare-negotiated prices for Ozempic and Wegovy of $274 per 30-day supply (down from $959, ~71% discount) effective 2027, a major policy move affecting pharma manufacturers and taxpayer savings; and Foxconn won approval to invest an additional $569M in Wisconsin to expand AI infrastructure and add ~1,374 jobs.

Analysis

Market structure: HPQ’s weak FY26 Q1 guide (midpoint $0.77 vs $0.78 est) and 6k job cuts signal near-term demand softness in PCs/printers and margin pressure from cost inflation; HPQ is a near-term loser while OEM component suppliers with AI exposure (NVDA, AAPL supply chain) and contract manufacturers (Foxconn) are winners as capex pivots to AI infrastructure (Foxconn $569M Wisconsin project, 1,374 jobs). The Medicare price cut for Ozempic/Wegovy to $274 from $959 (‑71%, effective 2027) directly pressures NVO/LLY pricing power in the largest US payer segment and sets a new benchmark for commercial negotiations.

Risk assessment: Tail risks include accelerated policy extensions to other blockbuster drugs (material revenue hits to big-cap biopharma), a deeper PC demand slump dragging tech hardware suppliers, or Foxconn execution/regulatory setbacks in the US. Near-term (days–weeks) expect volatility around HP earnings calls and biotech headlines; medium-term (6–18 months) pricing effects from Medicare negotiations; long-term (2+ years) structural AI-driven capex growth could re-rate supply-chain beneficiaries. Hidden dependencies: negotiated Medicare price is manufacturer-to-government — may still compress net realized prices via rebates and commercial spillover.

Trade implications: Implement tactical shorts in HPQ (4–6 month 10/20% OTM put spreads, 2–3% portfolio) to capture guidance-driven downside and rising IV. Establish convex long exposure to AI winners: NVDA LEAP call or 9–12 month call spread (3–5% portfolio) and selective longs in AMAT/LRCX or AAPL suppliers on pullbacks; keep biotech exposure to NVO/LLY hedged with 2027-dated put spreads or cut exposure by 25–40% if >2% weight. Rotate 2–4% from consumer hardware into semicap and datacenter names over 1–3 months.

Contrarian angles: Consensus may over-penalize NVO/LLY near term while underestimating volume and margin management (manufacturers may accept lower unit prices for broader market share), creating a 6–12 month buy-on-dip opportunity if management guidance shows volume offsets. HPQ selloff could be overdone if cost cuts and AI investments prove accretive — watch Q1 guide vs operating cashflow and buy weakness only if buybacks continue and gross margin stabilizes above 20% within two quarters.

Key Decisions for Investors

• Establish a 2–3% portfolio short in HPQ via 4–6 month 10/20% OTM put spreads to monetize near-term guidance risk and elevated IV; exit or reassess after the next two quarterly updates or if HPQ trades below a 12% loss from current levels.
• Allocate 3–5% to NVDA via 9–12 month call LEAPs or a 6–12 month call spread to play durable AI datacenter demand signaled by Foxconn capex; trim if NVDA rallies >25% or if guidance shows decelerating data-center spend.
• If holding NVO or LLY positions >2% portfolio, hedge with 2027-dated put spreads sized to cover 25–40% of position notional (reflecting Medicare price implementation risk) or reduce exposure by 25% ahead of 2027 negotiations materializing.
• Rotate 2–4% from consumer hardware exposure into semiconductor equipment names (AMAT, LRCX) and select AAPL supply-chain plays over the next 1–3 months; take small (0.5–1%) speculative stake in Foxconn OTC (FXCOF) only as a binary execution/permits play and set a 6–12 month milestone exit tied to production/earnings confirmation.