HPE currently at an ATH at ~$20.40 in premarket trading.
From SA email
HP Enterprise pops as Wall Street warms to AI story
Jun. 05, 2024 8:30 AM ET
Hewlett Packard Enterprise Company (HPE) Stock MSFT, DELL
By: Chris Ciaccia, SA News Editor
HP Enterprise (HPE) has thrown its hat in the artificial intelligence ring, and Wall Street is starting to notice.
The enterprise tech company reported fiscal second-quarter results and boosted its full-year guidance amid strength in its server segment. Revenue in the segment, its largest, jumped 18% year-over-year to $3.9B as AI revenue "doubled sequentially," above the company's prior guidance. Other areas, such as Intelligent Edge and hybrid cloud declined year-over-year, however.
Shares surged more than 16% in premarket trading
Even though HP Enterprise had a "notably softer" backlog than Dell (DELL), the company disclosed it is working with Microsoft (MSFT) and OpenAI to give them additional infrastructure capacity and services related to AI, UBS analyst David Vogt pointed out. Vogt, who has a Neutral rating, boosted his price target to $17 from $16 following the results and guidance.
"[W]hile the company bumped the FY24 revenue guide to 1-3% from 0-2%, the upside is being driven by Server rather than higher margin IE and Storage resulting in gross margin pressure offset by lower OpEx driving operating margins in FY24 flat vs FY23," Vogt wrote in an investor note.
Bernstein analyst Toni Sacconaghi had a similar view, in that AI server revenue continues to be strong. However, bookings were "relatively weak" and there are some questions about how HP Enteprise classifies AI (it includes supercomputing units).
"While HPE could tactically benefit from continued revenue upside this year from strong AI shipments, the jury is still out whether HPE can be a sustained AI beneficiary beyond FY24," Sacconaghi wrote in an investor note. "Moreover, we continue to worry that the company could be inwardly focused for the next 1-2+ years preparing for and integrating its Juniper acquisition, risking share loss in its traditional businesses."
Sacconaghi has a Market-Perform rating and $19 price target on HP Enterprise.
Morgan Stanley analyst Meta Marshall was a bit more positive. Compared to the valuation of other peers in the AI server business, he sees the margin profile of AI servers as "seemingly less destructive to [the] business model than expected." Marshall has an Equal-Weight rating on HP Enteprise and raised his price target to $21 from $19 following the results and guidance.
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