On Wednesday, Wells Fargo updated its outlook on HP (NYSE:HPQ) Enterprise (NYSE:HPE), increasing the price target to $19.00 from $17.00 while maintaining an Equal Weight rating. The firm noted that HP Enterprise is poised for a significant acceleration in its APU server revenue conversion, citing improved supply conditions and a robust order backlog.
HP Enterprise's APU server revenue, which surpassed $400 million in the first fiscal quarter of 2024 ending in January, is expected to see a strong uptick. This projection comes as GPU lead times normalize, dropping to approximately 10 weeks from over 20 weeks previously. The company's financial performance in the first fiscal quarter also included its inaugural AI cloud offering and gains from a substantial HPE GreenLake contract with a major hyperscale cloud provider.
The technology company's APU server backlog stood at roughly $3 billion at the close of the first fiscal quarter, overshadowing Dell (NYSE:DELL)'s reported backlog of nearly $2.9 billion. HP Enterprise's pipeline is said to be well in excess of this figure. The company has also reported a total of $4 billion in cumulative APU server orders, with an increase of $500 million sequentially in the first fiscal quarter.
The majority of these orders and the existing backlog are believed to be for HPE's Cray XD-series systems. Since the first fiscal quarter of 2023, APU servers have constituted about 25% of HPE's server orders. This growth trajectory indicates a strong demand for HP Enterprise's server solutions in the burgeoning AI market.
InvestingPro Insights
Recent data from InvestingPro showcases HP Enterprise's (NYSE:HPE) financial and market position. With a market capitalization of $22.28 billion, the company's valuation indicates a strong free cash flow yield, which is a positive sign for investors looking for cash-generating investments. The P/E ratio, standing at an adjusted 10.05 for the last twelve months as of Q1 2024, further underlines the company's earnings relative to its share price, making it an interesting consideration for value-oriented investors.
InvestingPro Tips highlight that HP Enterprise is a prominent player in the Technology Hardware, Storage & Peripherals industry and has maintained dividend payments for 10 consecutive years, which could be appealing for income-focused investors. Moreover, the company has experienced a strong return over the last three months, with a 21.49% price total return, reflecting the positive market sentiment towards HP Enterprise's growth and performance.
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