Hewlett Packard Enterprise (HPE) is celebrating a resounding victory after its fourth-quarter earnings report sent its stock price soaring. Shares jumped a remarkable 10.80%, closing at $23.99 on Friday, following the after-hours announcement that significantly exceeded analyst expectations.
The company reported adjusted earnings per share (EPS) of 58 cents, comfortably surpassing the consensus estimate of 56 cents. Even more impressively, sales surged 15% year-over-year (Y/Y) to $8.46 billion, outperforming the anticipated $8.26 billion. This robust performance has ignited significant optimism among investors and analysts alike.
The positive momentum extends beyond the current quarter. HPE’s first-quarter earnings guidance of between 47 and 52 cents per share is also exceeding expectations, with the current estimate sitting at 49 cents. This strong performance is largely attributed to the booming demand for AI servers, a segment experiencing remarkable growth and offsetting some weakness in other areas like networking and storage. The company’s broad portfolio of infrastructure hardware, software, and services is proving resilient, showcasing HPE’s adaptability to the evolving technological landscape.
Several prominent analysts have revised their outlooks on HPE, reflecting the increased confidence in the company’s future. Stifel analyst Matthew Sheerin increased the price target on HPE stock to $25 from $22 while maintaining a Buy rating, citing the company’s undervaluation and the strong potential of its AI server business. Sheerin anticipates that AI servers will be a major growth driver in fiscal year 2025 (FY25), contributing to improved gross margins through a more favorable product mix and increased software and services attachment. His revised estimates for FY25 include revenue of $32.250 billion (up from $31.749 billion) and EPS of $2.11 (from $2.10). Looking even further ahead, Sheerin projects FY26 revenue of $33.803 billion and adjusted EPS of $2.29.
While acknowledging a potentially choppy outlook for the industry as a whole, JP Morgan analyst Samik Chatterjee anticipates upside in HPE’s Enterprise Server and Networking segments. However, he also notes potential headwinds from AI server competition and possible slowdowns in federal spending. Chatterjee’s Q4 revenue estimate of $8.24 billion is slightly below consensus. Meanwhile, Bank of America analyst Wamsi Mohan reaffirmed a Buy rating and a price target of $26, highlighting HPE’s advantageous position for a recovery in IT spending fueled by cyclical growth in servers, storage, and networking, as well as the positive impact of the Juniper acquisition and associated cost savings. The analyst also points to the strength in Hybrid Cloud and higher AI server margins due to increased enterprise and sovereign demand as significant growth factors.
Goldman Sachs analyst Michael Ng further boosted confidence by raising F25/26/27 EPS estimates by an average of 2%, reflecting the growing AI pipeline and positive momentum in the storage sector. Investors seeking exposure to HPE can consider ETFs like the First Trust S&P 500 Diversified Dividend Aristocrats ETF (KNGZ) and the Roundhill Generative AI & Technology ETF (CHAT).
The strong performance and positive outlook from HPE make it a compelling investment opportunity in the current market, particularly given the growing demand for AI-related technologies.
