Citi upgrades Hewlett Packard Enterprise to Buy due to strong AI growth and improved fundamentals

From Investing.com: 2024-12-06 09:09:18

Citi analysts upgraded Hewlett Packard Enterprise to Buy, citing strong AI growth and improved fundamentals. The price target increased to $26 from $23, with AI revenues surging over 300% year-over-year in Q4 to $1.5 billion. Citi projects continued AI revenue growth of over 25% annually through 2026, supported by enterprise adoption and innovations like liquid cooling.

HPE’s deep pipeline includes $3.5 billion in orders post-Q4, highlighting its strategic position in private cloud AI solutions. Networking recovery, with three quarters of order growth, presents further potential gains post-Juniper acquisition. The deal could drive up to 16% EPS accretion by FY26, increasing networking’s share of total sales to 25-30%.

Hybrid cloud revenues grew 18% y/y and 22% q/q, exceeding expectations due to private cloud demand and HPE Alletra storage adoption. Analysts see improving server demand and new AI opportunities as foundations for sustained growth. Risks include Juniper acquisition delays, GPU supply constraints, and competitive pressures.

Despite risks, Citi sees upside in HPE’s growing AI presence, market recovery, and favorable valuation. Trading at an 11x forward P/E with a discount to peers, HPE presents meaningful upside potential. Citi concludes, “Even at a ~20% discounted multiple to peers, we see meaningful upside to shares.”



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