Hewlett Packard Enterprise Upgraded to “Overweight” by Barclays

Hewlett Packard Enterprise Co (NYSE: HPE) is expected to continue its growth in artificial intelligence server revenues and see enhancements in its storage business, according to analysts from Barclays.

In a recent report, the analysts upgraded HPE’s rating from “Equal-weight” to “Overweight,” highlighting that even though the company has adopted a more cautious approach towards its AI operations, it is still experiencing a significant increase in orders and revenue in this area.

During the most recent quarter, AI server orders surged by 167% compared to the previous three-month period. The analysts project a sequential revenue growth of over 30% for AI servers in the upcoming quarter. They also noted that HPE remains competitive without further straining its already low gross margins, estimating a gross margin of around 15% on its AI server business, primarily from hyperscaler clients.

Additionally, HPE is revamping its storage segment by replacing third-party intellectual property with internally developed solutions. This strategic shift aims to secure future recurring revenue streams.

These insights follow HPE’s recent announcement to raise its annual profit forecast, partly due to increased business investments in AI infrastructure.

Despite facing tough competition from server manufacturers like Dell Technologies, HPE now anticipates adjusted earnings per share for the full year to be between $1.92 and $1.97, an increase from its earlier forecast of $1.85 to $1.95. In August, Dell also improved its annual profit and revenue projections.

However, HPE’s stock suffered a decline following investor concerns over a drop in third-quarter revenue within its data analysis and traditional cloud segments. The company’s decision to maintain its full-year revenue outlook further impacted share performance.