By In the quest for new opportunities in artificial intelligence hardware, investors are turning their attention back to Hewlett Packard Enterprise.
Splitting of Old Hewlett Packard
In 2015, the original Hewlett Packard split into two companies – HP Inc. handling personal computers and printers, while HP Enterprise focuses on providing an array of hardware and software solutions to corporate customers. This includes servers, networking equipment, and even supercomputers. Notably, the recent acquisition of Cray has solidified its position in the supercomputing sector.
Embracing AI Technology
The company’s stock has garnered newfound interest due to its increasing backlog of orders for AI servers powered by Nvidia graphics processing units. This momentum resulted in a nearly 10% increase in HP Enterprise shares on Monday.
Recent Performance
Despite a shift in headquarters to Houston from Silicon Valley in 2022, HP Enterprise has shown only modest growth in recent quarters. The company reported a 14% decline in revenue for the January quarter, falling below both management’s expectations and analyst forecasts. The softness in the networking business was attributed to the revenue shortfall.
Future Outlook
For the fiscal year ending in October 2024, HP Enterprise anticipates revenue to remain flat or increase by up to 2%.
Market Concerns and Acquisitions
Amidst investor skepticism surrounding the impending $14 billion acquisition of Juniper Networks, HP Enterprise has faced pressure on its shares. Initially positioned as a strategic move to address networking needs in cloud-computing environments focusing on generative AI, the market response to the deal was initially negative.
Even though the market may have initially had a lukewarm reaction to HP Enterprise’s latest earnings report, recent surges in Super Micro Computer and Dell Technologies have sparked a reconsideration.
Rethinking the Stock
One compelling factor is that HP Enterprise’s shares stand out as some of the most affordable among tech stocks. With a price-to-earnings ratio of just nine times estimated earnings for the current year profits and 0.7 times estimated sales, there is significant value to be found.
Focus on AI
CEO Antonio Neri highlighted the company’s momentum in AI-related servers, noting a substantial $4 billion in AI-related server orders since the start of fiscal 2023. This brings the backlog to $3 billion, showing growth of $500 million in the latest quarter. Additionally, 25% of the company’s server revenue is now connected to AI.
Anticipated Growth
Neri expressed that revenue for the latest quarter could have been even higher if there were more GPUs available. The company foresees an uptick in converting backlogged orders to sales during the second half of the fiscal year in October 2024, leading to increased revenue.
Positive Investor Sentiment
A spokesperson for HP Enterprise stated that the company’s competitive position in AI has been well-received by investors. Additionally, anticipation around Juniper playing a key role in the HPE narrative has further fueled investor confidence.
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