Here's a classic market puzzle: a company reports quarterly earnings that beat expectations, its sales come in stronger than forecast, and... its stock does basically nothing. That was the story for HP Inc. (HPQ) on Wednesday, as shares traded essentially flat after the company's latest results.

Investors, it seems, were less interested in the past quarter's win and more focused on management's cautious tone about the year ahead. The culprit? Soaring memory costs and the resulting squeeze on profit margins.

The Numbers Were Good, Actually

Let's start with the good news. For its first quarter, HP reported adjusted earnings per share of 81 cents, beating the analyst consensus estimate of 77 cents. Sales rose 6.9% year-over-year to $14.4 billion, also surpassing the expected $13.9 billion. By the standard report card, that's a solid A.

But in the stock market, you're often graded on what you're going to do next, not what you just did. And that's where the story gets trickier for HP.

Why Analysts Are Getting More Cautious

The cautious outlook was echoed by analysts, most notably by Bank of America Securities. Analyst Wamsi Mohan reiterated an Underperform rating on the stock and lowered his price target from $18 to $16. His reasons? A triple threat of slower PC demand, memory-driven margin pressure, and uncertainty around the company's leadership transition.

The memory cost issue is particularly acute. Mohan noted that these costs have now "doubled" from the initial 40%-50% increase that was baked into the company's financial guidance. This surge is so significant that the analyst projects HP will have to lower its financial outlook for 2026.

So, how is a company supposed to fight back when a key component suddenly gets a lot more expensive? According to the analyst, HP's mitigation playbook includes pricing adjustments, finding new component sources, better supply-chain coordination, and tighter inventory management. The company also expects cost controls and restructuring actions to help offset the pressure.

Mohan explained that margins weakened in the quarter partly due to a "higher mix of education" and consumer sales, even though overall revenue growth was solid. It's a reminder that not all revenue is created equal—some sales are just more profitable than others.

A Silver Lining in Print

It wasn't all grim news in the analyst's take. He described the performance of HP's Print segment as "stable," supported by earlier pricing actions and cost discipline, even though hardware sales volumes were weaker. He expects full-year Print margins to benefit from those pricing changes and an improved mix of products sold.

Despite the margin challenges, Mohan noted that HP's earnings and free cash flow expectations for the year remain intact, though management has signaled that results may come in near the low end of their projected range. The analyst slightly raised his revenue and earnings estimates but lowered the price target to reflect more cautious long-term expectations.

HP shares were up a mere 0.16% at $18.23 at the time of the original report. Notably, the stock was trading near its 52-week low of $18.00. When a beat on earnings and sales can't move the needle, it tells you what investors are really worried about: the cost of doing business tomorrow.