Hewlett Packard Enterprise downside potential outweighed by enthusiasm for AI server upside

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Hewlett Packard Enterprise downside potential outweighed by enthusiasm for AI server upside - Morgan Stanley

Published Nov 30, 2023 10:24AM ET

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Hewlett Packard Enterprise downside potential outweighed by enthusiasm for AI server upside - Morgan Stanley

HPE

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Morgan Stanley upgraded Hewlett Packard Enterprise (NYSE:HPE) to Equal Weight from underweight in a note Thursday, maintaining its $16 per share price target on the stock.

Analysts, reacting to the company's quarterly earnings release, said the firm would have liked more derisking of Intelligent Edge
estimates heading into FY24. However, "given where we are in hardware cycle, and the longer term AI opportunity, we see little opportunity for further multiple compression," the analysts wrote.

"Given we are multiple cuts into this negative hardware cycle and multiple is past floor, we now believe valuation is more reasonable and are moving away from our UW," the analysts explained.

While Morgan Stanley still believes HPE's estimates have some room for further downward revisions, particularly on Intelligent Edge, they think the potential is outweighed by investor enthusiasm about the potential AI server upside.

"We could be too optimistic if hardware weakness extends further out than expected or AI servers story get pushed out," added the analysts, who stated the investment bank could eventually turn more positive on the stock if AI and hybrid cloud opportunities accelerate quicker than expected, cash from H3C leads to capital return, or if Intelligent Edge business continues to gain share post-backlog release.

After a more than 6% gain Wednesday, HPE is up a further 2.7% so far in Thursday's session.

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