Investors began to see HPE stock as a bet on AI: report lifted the securities by 37%

Shares of data center server assembler Hewlett Packard Enterprise jumped nearly 37% in trading on Tuesday, June 2. The company reported a strong quarter, after which it expects to meet its long-term financial goals two years ahead of plan, Reuters writes. The market is starting to see Hewlett Packard Enterprise as a new bet on AI infrastructure, Yahoo Finance notes. HPE's results reflected strong demand in that market following similar successes from Dell, whose shares rose 32% after the report.

Shares of Hewlett Packard Enterprise were up 36.7% to $64.25 in Tuesday trading. This is a new record for all time of their circulation on the stock exchange. The papers on June 2 showed the strongest growth in its history in one day, notes Reuters.

Investors were impressed by the quarterly reports, which turned out to be much better than expected, Yahoo Finance writes. HPE's revenue for the second quarter of fiscal 2026, which ended April 30, rose 40% year-over-year to $10.7 billion. Analysts had expected $9.8 billion, according to FactSet, writes MarketWatch. Adjusted EPS came in at $0.79, while Wall Street expected $0.53.

HPE's Network Infrastructure business saw a 2.5-fold increase in revenue. The business, which deals with servers, cloud infrastructure and AI-systems (Cloud and AI), revenue grew by 23%. The bulk of that amount came from server sales: they increased 33% to $5.5 billion, MarketWatch notes. The insatiable demand of corporate customers for computing power for AI led to the fact that during the quarter the server builder received new orders for AI systems for $1.8 billion, and the company's total portfolio of AI orders grew to $5.9 billion, Yahoo Finance writes.

HPE said its updated forecasts for adjusted earnings per share and free cash flow for fiscal 2026 are now above levels the company previously expected to reach only by 2028. The company raised its full-year adjusted EPS guidance to a range of $3.35-3.45 from the previous $2.30-2.50.

At least 12 brokerages raised their target prices on HPE shares following the report, Reuters writes. The median target price is now $66 versus $26.5 before the results were published, according to LSEG data cited by the agency.

- "We maintain a positive view on HPE stock," Yahoo Finance quoted Citi analyst Asia Merchant as saying. - The company is getting support from demand for AI computing, growth in its networking business and development of its storage business. We are increasing our forecasts and raising our target price to $70 from the previous $39."

- "We raise our recommendation on HPE stock to 'buy' and raise our target price to $75 from $23," Loop Capital analyst Ananda Baruah wrote in a note cited by Yahoo Finance. - The April quarter was a historically strong quarter, with the introduction of agent-based AI and inference (the output of AI responses to user queries. - Oninvest) accelerating revenue growth while improving operating margins. With commercial investment in inferencing now beginning in earnest - also seen in Dell and NetApp - we believe the market may be at the beginning of a three- to five-year period of accelerated growth."

- "Results were better than expected, especially in the cloud and AI business," Yahoo Finance quoted KeyBanc analyst Brandon Nispel as saying. - Demand for traditional servers was also strong, while the networking business came in closer to expectations. Demand gave HPE the confidence to raise its forecast for fiscal 2026 and provide guidance for 2027. The company appears to be benefiting from a turning point in corporate demand for inferencing, where the main constraint is now becoming supply."

- "The sudden surge in HPE stock is partly due to its low valuation. Since 2018, the securities have been trading at a low single-digit P/E multiple," according to Yahoo Finance AlphaSpace.

- "A 'refresh year' of enterprise IT hardware, infrastructure modernization for AI, and product line upgrades are helping revenue at companies such as Dell, HPE and Super Micro," Piper Sandler analysts said in a note cited by Reuters. - "While HPE is now catching this wave, we prefer to be 'in other boats' given the risk profile and business lines."

- "The main takeaway from the quarter is that HPE is benefiting from the same pricing dynamics that have recently supported Dell: customers are accepting substantially higher prices for servers, and so far there is little sign that this [price increases] is eroding demand," Reuters quoted a note from Morgan Stanley analysts as saying.

The main difference between Dell and HPE is the scale of business, writes Barron's. Dell's server division has revenues of $29 billion, which is almost four times higher than the sales of HPE's comparable Cloud and AI division, the publication explains.

HPE said Monday that it expects revenue growth for that division in fiscal 2026 to be in the range of just above 20% year-over-year. That implies revenue of about $32.4 billion. By comparison, Dell expects its AI server revenue for the full fiscal year to be $60 billion.

HPE shares are trading at a forward P/E multiple (the ratio of stock price to next year's earnings) of 15.66. By comparison, Dell has a P/E of 23.92 and Super Micro has a P/E of 14.49, Reuters writes.

This article was AI-translated and verified by a human editor