Hewlett Packard Edge Computing's Promise Amidst Dwindling Compute Sales: Analysts

Hewlett Packard Enterprise Co HPE stock is down Wednesday after mixed second-quarter results and dismal Q3 guidance.

Susquehanna analyst Mehdi Hosseini reiterated a Hold rating on Hewlett Packard and set a price target of $16. 

HPE reported weaker-than-expected top-line results driven by weaker Compute and HPC, consistent with his view that the January quarter would be a near-term peak, further supported by HPE's commentary that demand was even more uneven in the April quarter sequentially.

HPC undoubtedly benefits from AI exposure, though its contribution is not significant enough to offset the shelving of some traditional HPC projects. The mix was favorable, helping HPE with a better gross margin profile, which also helped with EPS upside. 

HPE's order book remained elevated at more the 1.5x its pre-pandemic level but is down from 2x pre-pandemic levels from the January quarter, highlighting ongoing uneven/weakening demand.

Despite order strength in Intelligent Edge and AI, there does not seem to be a near-term catalyst for HPE's Compute segment, which makes up the most significant portion of their sales. The analyst expects the Compute sales to decline Y/Y until mid-2024, which leads to his lowered FY23/FY24 revenue estimate.

Raymond James analyst Simon Leopold maintains an Outperform rating on the stock with a price target of $19 following the mixed 2Q report.

However, the upside to the higher margin, Intelligent Edge, provided a favorable mix that boosted margin and EPS in the quarter and outlook. 

HPE made a case for its place within the broad AI adoption theme, and considering the valuation and scarcity of AI investment ideas, this long-time player in High-Performance Computing deserves consideration. 

Leopold shaves FY23/FY24 estimates.

Credit Suisse analyst Shannon Cross maintains Hewlett Packard an Outperform and lowers the price target from $19 to $18.

The analyst remains positive on the 2x operating profit contribution from Aruba Y/Y and growth in subscription revenue.

Price Action: HPE shares traded lower by 6.60% at $14.50 on the last check Wednesday.