April quarter may slightly beat expectations, but memory cost pressure will be greater in the second half

Overview

This report is UBS's preview of April-quarter earnings for the US enterprise hardware and networking sector, covering HP Inc, Pure Storage, Dell Technologies, and NetApp. The core view is that near-term results are likely to be in line with expectations or slightly better, mainly driven by AI server demand, customer pull-forward buying ahead of memory price increases in PCs, servers, and storage, and some price pass-through; but as H2:26 or FY27 approaches, rapidly rising memory and component costs could trigger demand destruction, gross margin pressure, and valuation re-rating.

Core views

UBS has a cautiously balanced view on the sector. HPQ's near-term PC revenue is supported by the Windows 11 replacement cycle and demand pull-forward, but rising PC ASPs could pressure future demand, and FY26 EPS guidance carries downside risk toward the low end. Pure Storage revenue may be revised up due to price pass-through and pull-forward buying, but product gross margin recovery depends on price stability, and the faster pace of cost inflation than price adjustments raises FY27 margin risk. Dell is supported by a backlog of AI server orders, so April-quarter revenue and EPS could beat expectations, but AI server margins are low and the stock already reflects a relatively optimistic outlook. NetApp storage demand remains solid, but product gross margin is constrained by component costs, and FY27 EPS guidance could come in below consensus.

Analysis framework

The report combines company guidance, VA consensus, UBS forecasts, channel and VAR surveys, ODM and distributor checks, component price views, and valuation multiple analysis to assess April-quarter results, subsequent-quarter guidance, FY26/FY27 earnings risk, and whether the stock has already priced in upside from AI servers or demand pull-forward.

Methodology notes

• Earnings previewComparison of company guidance and consensus expectations

  Compare UBS forecasts, company guidance, and VA consensus item by item

  Used to judge whether revenue, gross margin, operating profit, and EPS may beat expectations, and whether the market has already priced in upside.

• Channel validationUBS Evidence Lab VAR survey and industry checks

  Observe real demand through feedback from channel partners, VARs, ODMs, and distributors

  The report uses storage, PC, and server channel feedback to determine whether demand is resilient, whether there is demand pull-forward, and whether price increases could cause demand destruction.

• Cost pass-through analysisMemory pricing and gross margin sensitivity

  Analyze the impact of DRAM, NAND, and other component price increases on revenue, gross margin, and operating profit

  UBS distinguishes between mechanical revenue growth from price pass-through and true demand growth, and emphasizes that zero-margin or low-margin price pass-through does not necessarily improve profits.

• Valuation analysisNTM P/E and peer multiple comparison

  Use historical averages, standard deviations, and peer valuation to judge embedded expectations

  The report argues that Dell's valuation already reflects optimistic AI server expectations, Pure Storage's valuation is above storage peers, and HPQ trades at a discount to the S&P 500 near a 10-year extreme.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• HPQ

  Covered company; PC and printing businesses are exposed to memory costs and the Windows 11 replacement cycle

  Strengths

  April-quarter PC revenue is supported by the Windows 11 replacement cycle, pull-forward buying, and high-margin printing, and Print margins are expected to be near the high end of long-term guidance.

  Weaknesses

  PC revenue accounts for a relatively large share of the business and is sensitive to memory costs and rising ASPs; PSG margins may bottom in the second half of FY26.

  Comparison

  Discount to the S&P 500 is about 66%, near the widest level in more than 10 years.

  Risks

  FY26 EPS guidance leaning low-end or cut, PC demand destruction, and further memory cost increases.

• P

  Covered company; exposure to storage and AI infrastructure

  Strengths

  Near-term revenue is supported by demand pull-forward, price pass-through, and hyperscaler contributions, and FY27 revenue guidance may be raised.

  Weaknesses

  Product gross margin is pressured by DRAM/NAND and component price increases, and the revenue revision may mainly come from zero-margin cost pass-through.

  Comparison

  Valuation is about 36x consensus NTM EPS and about 6x EV/NTM revenue, above storage peers such as NetApp, Dell, and HPE.

  Risks

  FY27 gross margin expectations cut, growth slows after pull-forward, and the market overvalues it as an AI infrastructure company.

• DELL

  Covered company; AI servers, PCs, and core server/storage businesses

  Strengths

  AI server backlog is about $43B, giving upside to April-quarter revenue and EPS, and CSG revenue is also supported by PC demand.

  Weaknesses

  AI server gross margin and operating margin are relatively low, limiting EPS leverage; core businesses still account for most revenue and operating profit.

  Comparison

  NTM P/E is about 19x, nearly double the roughly 10x level in early February, and the market has already priced in much of the AI revenue improvement.

  Risks

  July-quarter guidance below consensus, AI server revenue recognition later than expected, and memory costs pressuring CSG and ISG margins.

• NTAP

  Covered company; enterprise storage demand and component-cost exposure

  Strengths

  VAR survey shows core storage demand remains relatively solid, and revenue may approach the high end of guidance.

  Weaknesses

  Product gross margin is affected by higher memory and component costs, and FY27 EPS guidance may come in below VA consensus.

  Comparison

  The valuation is more balanced relative to Pure Storage, reflecting supply-chain and gross-margin concerns.

  Risks

  Initial FY27 EPS guidance below expectations, product gross margin flat, and storage demand pulled forward at the expense of later periods.

Key data

• HPQ April-quarter revenue forecast$13.6BUBS expects it to be broadly in line with forecasts; VA consensus is about $14.0B.
• HPQ April-quarter EPS forecast$0.70Close to VA consensus of $0.71.
• HPQ FY26 EPS forecast$2.88Company guidance is $2.90-$3.20, but UBS believes investor expectations may be closer to $2.70-$2.80.
• Pure Storage April-quarter revenue estimate$1,009MCompany guidance is $990M-$1,010M, VA consensus is $1,003M, including at least about $40M of demand pull-forward.
• Pure Storage product gross margin forecastF1Q about 65%, F2Q about 65.5%Below the optimistic scenario of recovering to the high end of the 65%-70% range.
• Dell April-quarter revenue forecast$36.4BAbout 3% above UBS's original estimate; company guidance is $34.7B-$35.7B.
• Dell April-quarter EPS forecastabout $3.05About 5% above UBS's $2.90 forecast, but the market may already be pricing in a beat.
• Dell AI server revenue forecastF1Q $13.0B, F2Q $11.7B, FY27 $50.0BFY26-end backlog of about $43B provides visibility for upside.
• NetApp revenue forecastabout $1.9BAbout 10% year-over-year growth, near the high end of company guidance.
• NetApp F4Q EPS forecastabout $2.26Company guidance is $2.21-$2.31, VA consensus is $2.27.
• DDR contract price forecastQ2 about +60% QoQ / +379% YoYFrom UBS's recent industry checks.
• NAND contract price forecastQ2 about +60% QoQ / +278% YoY, then another about +10% QoQ in Q3Memory price increases are the report's most important margin risk source.

Impact & implications

The investment takeaway is that short-term earnings beats do not necessarily translate into stock upside, because some revenue comes from pull-forward buying or cost pass-through, which is lower quality than true demand growth. The key variables in the second half are whether customers accept higher prices, whether PC and storage demand is pulled forward at the expense of later periods, whether low-margin AI servers limit EPS leverage, and whether management cuts FY26/FY27 profit or gross margin expectations.

Risks

• Memory and NAND prices continue to rise rapidly, forcing OEMs to raise end-customer prices further.
• Customers pull forward demand from H2:26 or FY27, creating demand destruction.
• AI server revenue is high but low margin, limiting the EPS contribution from revenue upside.
• HPQ and NetApp FY26/FY27 EPS guidance may fall below consensus.
• Pure Storage FY27 product gross margin and valuation multiple may face downward revisions.
• The market has already priced in strong Dell AI server growth, so the stock reaction after a beat may be limited.

What to watch

• Whether HPQ maintains FY26 EPS guidance of $2.90-$3.20 and how management describes the low end of the range.
• Whether Pure Storage raises FY27 revenue guidance but keeps operating profit guidance unchanged, confirming that growth is mainly driven by cost pass-through.
• Whether Dell AI server revenue materially exceeds $13B and whether July-quarter EPS guidance is below VA consensus.
• Whether NetApp's initial FY27 EPS guidance lands in the $8.25-$8.55 range and below VA consensus of $8.59.
• Actual Q2 and Q3 DRAM and NAND contract price increases.
• Whether channel data show PC, server, and storage demand slowing after pull-forward buying.