Hewlett Packard Enterprise (HPE) Outshines Market with Strong Growth
Hewlett Packard Enterprise (HPE) has seen its stock rise 21.6% in the past six months, surpassing the Zacks Computer and Technology Sector, which returned 11.7%, and the S&P 500 index’s 12.7%. During this period, HPE outperformed the Zacks Computer – Integrated Systems industry, which declined by 2.3%. This strong performance reflects investor trust in HPE’s innovative portfolio, particularly in the fields of high-performance computing (HPC) and artificial intelligence (AI).
Recently, HPE has broadened its presence in HPC and AI by launching new products such as advanced cooling systems, networking components, storage solutions, and AI-optimized servers along with user service software. These updated compute systems utilize accelerators from Advanced Micro Devices (AMD), Intel (INTC), and NVIDIA (NVDA) to deliver tailored performance for users.
The newly introduced HPE Cray Supercomputing EX4252 Gen 2 Compute Blade showcases impressive capabilities, featuring a compact one-rack unit that can house up to 98,304 cores within a single cabinet. This model includes eight 5th Gen AMD EPYC processors, designed for demanding workloads. Additionally, the HPE Cray Supercomputing EX154n can support up to 224 NVIDIA Blackwell GPUs in one cabinet.
On the networking side, HPE has launched the Slingshot interconnect 400, which offers a remarkable data speed of 400 gigabits per second by integrating network interface controllers, cables, and switches. The company also rolled out the Cray Supercomputing Storage Systems E2000, which doubles the input-output operations compared to its predecessor, enhancing the performance of CPU and GPU-based tasks.
New additions to HPE’s server lineup include the ProLiant Compute XD680 and XD685 servers. The XD680 server is equipped with Intel Gaudi 3 AI accelerators, while the XD685 comes with either NVIDIA H200 SXM Tensor Core GPUs or NVIDIA Blackwell GPUs. Both models are designed for AI applications with a focus on cost-effective performance. HPE has also introduced user service software to help customers enhance energy efficiency and optimize system performance across various devices.
Overview of HPE’s Performance Over the Past Six Months
Image Source: Zacks Investment Research
HPE’s Commitment to Expanding Its AI Portfolio
HPE is committed to enhancing its offerings. In the fourth quarter of fiscal 2024, the company launched several new products including enhancements to its Aruba Networking Central, which now features AI insights, improved configuration options, and better network visibility.
The ProLiant DL145 Gen11 server, ProLiant Compute XD685, and the first-ever 100% fanless direct liquid cooling systems architecture were also introduced during this ongoing quarter. Moreover, HPE rolled out HPE Private Cloud AI, which enables customers to rapidly deploy generative AI virtual assistants using private data.
Hewlett Packard Enterprise is targeting AI, the Industrial Internet of Things, and distributed computing as critical growth areas. The company has invested billions over the last few years to strengthen its skills in these sectors.
These investments are paying off, as HPE reported revenues of approximately $1.3 billion from its AI systems in the third quarter of fiscal 2024—a significant 39% increase from the previous quarter. In addition, the storage division has seen double-digit growth in orders for the HPE Alletra Storage range, while HPE GreenLake hybrid cloud SaaS offerings also experienced similar growth during this period.
Challenges Ahead for HPE
Despite its positive developments, HPE may face challenges in the near term due to declining IT spending. Rising interest rates and inflation are weighing on consumer spending, with enterprises delaying large IT investments amid a sluggish global economy and ongoing macroeconomic uncertainties. This could negatively impact HPE’s immediate prospects.
Additionally, the trade tensions between the United States and China pose a significant risk to the company. Extended sales cycles are prolonging deal closures, and some operational challenges are affecting HPE’s revenue growth.
These factors led HPE to project a modest sales growth target of just 2-3% for fiscal 2024. The Zacks Consensus Estimate places fiscal 2024 revenues at $29.9 billion, indicating an expected year-over-year growth of 2.71%.
HPE anticipates its non-GAAP earnings per share (EPS) to fall between $1.92 and $1.97. The Zacks consensus estimate is $1.95, suggesting a year-over-year decline of 9.3%.
Advice for Investors
Though HPE continues to release innovative products that attract positive attention from customers, broader economic challenges are hindering its progress.
Given these mixed signals, we advise investors to hold onto this Zacks Rank #3 (Hold) stock for now. For more insights, you can view the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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