Hewlett Packard Enterprise Stock Soars on Strong AI Demand

Hewlett Packard Enterprise (HPE) stock jumped nearly 15% out of the gate Wednesday after the technology company beat top- and bottom-line expectations for its fiscal second quarter and issued a strong outlook thanks to solid demand for its artificial intelligence (AI) servers.

In the three months ended April 30, HPE's revenue increased 3% year-over-year to $7.2 billion, driven by an an 18% jump in its server segment to $3.9 billion. The company said earnings per share (EPS) declined 19% from the year-ago period to 42 cents.

"HPE delivered very solid results in Q2, exceeding revenue and non-GAAP EPS guidance," Hewlett Packard Enterprise CEO Antonio Neri said in a statement. "AI systems revenue more than doubled from the prior quarter, driven by our strong order book and better conversion from our supply chain." 

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Neri added that the company's "deep expertise in designing, manufacturing and running AI systems at scale fueled growth of cumulative AI systems orders to $4.6 billion, with enterprise AI orders representing more than 15%."

The top- and bottom-line results cruised past analysts' expectations. According to CNBC, Wall Street was anticipating revenue of $6.8 billion and earnings of 39 cents per share.

For its fiscal third quarter, HPE said it expects revenue in the range of $7.4 billion to $7.8 billion and EPS to arrive between 43 cents to 48 cents. Analysts, meanwhile, are anticipating revenue of $7.5 billion and earnings 47 cents per share.

The company was able to raise its current-quarter guidance because of its "robust AI systems order momentum and disciplined execution across our entire portfolio," said Marie Myers, chief financial officer of Hewlett Packard, in a statement. "We are driving profitable growth as we convert customer demand to revenue, particularly for HPE's AI systems. The long-term trends across hybrid cloud and networking also position us well for the future."

Is Hewlett Packard stock a buy, sell or hold?

Despite a strong performance so far in 2024 with a return of more than 17%, analysts' are on the sidelines when it comes to the tech stock. According to S&P Global Market Intelligence, the consensus analyst target price for HPE stock is $19.68, which is right around where the stock trades today. Additionally, the consensus recommendation is a Hold.

Susquehanna Financial Group analyst Mehdi Hosseini is one of those with a Neutral (Hold) rating on Hewlett Packard. While the company's results did show "some green shoots in traditional servers" and a backlog that is now at a normal level, "we continue to believe HPE lacks key growth oriented products in its product portfolio, and as such key competitors like NetApp (NTAP) and Dell (DELL) will continue to gain share and consolidate AI supply chain," Hosseini says.

The analyst did boost his price target on HPE to $20 from $14, though this is just a slight premium to current levels.

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