Hewlett Packard Enterprise sees its best performance in years after posting growth from AI server market
- Hewlett Packard Enterprise stock rises as much as 15% on fiscal Q2 results.
- AI server segment doubles revenue to $900 million.
- HPE stock reaches new all-time high on Wednesday at $20.43.
- Some analysts remain worried about weak bookings for later this year.
Hewlett Packard Enterprise (HPE) stock has shot up as much as 15% on Wednesday after the legacy computing company reported quarterly results showing a leap in demand for its AI server products.
This puts Hewlett Packard in the same league as Super Micro Computer (SMCI) and Dell Technologies (DELL), both of which have benefited magnificently over the past two years from the artificial intelligence (AI) renaissance in chip design.
The broader equity market is largely gaining on news that US hiring is drifting lower. April’s JOLTS survey on Tuesday saw Job Openings drop from 8.355 million in March to 8.059 million. Wednesday’s ADP Employment Change report showed May hiring drop from 188K in April to 152K in May, well below consensus.
The NASDAQ has added 1.6% at the time of writing, followed by the S&P 500’s 0.9% gain.
Hewlett Packard stock news
Hewlett Packard has long been a legacy company with dwindling revenues and an uncertain future. However, late Tuesday when management released its fiscal Q2 results, revenue grew more than 3% YoY to $7.2 billion rather than the $6.8 billion that Wall Street analysts had projected.
It seems that most of that gain comes from AI-oriented server systems, which doubled in just one quarter to $900 million. CEO Antonio Neri said that Nvidia (NVDA) had provided a larger supply of its state-of-the-art AI GPUs, which are in hot demand in the server market.
Nvidia owns something like 90% of the AI chip market at the moment. Overall, revenue in Hewlett Packard’s server business reached $3.87 billion in the second fiscal quarter, about $420 million above expectations.
The burgeoning AI server market has sent shares of Super Micro Computer up 261% over the last year, while Dell’s share price has risen about 200%. Traders have to wonder whether Hewlett Packard can join that much-loved segment of the market or if the supply spigot from Nvidia will reduce.
Morgan Stanley raised its price target on HPE shares to $21, while analysts from Bernstein and UBS were less enthusiastic about lower bookings.
AI stocks FAQs
First and foremost, artificial intelligence is an academic discipline that seeks to recreate the cognitive functions, logical understanding, perceptions and pattern recognition of humans in machines. Often abbreviated as AI, artificial intelligence has a number of sub-fields including artificial neural networks, machine learning or predictive analytics, symbolic reasoning, deep learning, natural language processing, speech recognition, image recognition and expert systems. The end goal of the entire field is the creation of artificial general intelligence or AGI. This means producing a machine that can solve arbitrary problems that it has not been trained to solve.
There are a number of different use cases for artificial intelligence. The most well-known of them are generative AI platforms that use training on large language models (LLMs) to answer text-based queries. These include ChatGPT and Google’s Bard platform. Midjourney is a program that generates original images based on user-created text. Other forms of AI utilize probabilistic techniques to determine a quality or perception of an entity, like Upstart’s lending platform, which uses an AI-enhanced credit rating system to determine credit worthiness of applicants by scouring the internet for data related to their career, wealth profile and relationships. Other types of AI use large databases from scientific studies to generate new ideas for possible pharmaceuticals to be tested in laboratories. YouTube, Spotify, Facebook and other content aggregators use AI applications to suggest personalized content to users by collecting and organizing data on their viewing habits.
Nvidia (NVDA) is a semiconductor company that builds both the AI-focused computer chips and some of the platforms that AI engineers use to build their applications. Many proponents view Nvidia as the pick-and-shovel play for the AI revolution since it builds the tools needed to carry out further applications of artificial intelligence. Palantir Technologies (PLTR) is a “big data” analytics company. It has large contracts with the US intelligence community, which uses its Gotham platform to sift through data and determine intelligence leads and inform on pattern recognition. Its Foundry product is used by major corporations to track employee and customer data for use in predictive analytics and discovering anomalies. Microsoft (MSFT) has a large stake in ChatGPT creator OpenAI, the latter of which has not gone public. Microsoft has integrated OpenAI’s technology with its Bing search engine.
Following the introduction of ChatGPT to the general public in late 2022, many stocks associated with AI began to rally. Nvidia for instance advanced well over 200% in the six months following the release. Immediately, pundits on Wall Street began to wonder whether the market was being consumed by another tech bubble. Famous investor Stanley Druckenmiller, who has held major investments in both Palantir and Nvidia, said that bubbles never last just six months. He said that if the excitement over AI did become a bubble, then the extreme valuations would last at least two and a half years or long like the DotCom bubble in the late 1990s. At the midpoint of 2023, the best guess is that the market is not in a bubble, at least for now. Yes, Nvidia traded at 27 times forward sales at that time, but analysts were predicting extremely high revenue growth for years to come. At the height of the DotCom bubble, the NASDAQ 100 traded for 60 times earnings, but in mid-2023 the index traded at 25 times earnings.
HP Enterprise stock forecast
Wednesday appears to be the largest gain for HPE stock since the stock began with the split from HP (HPQ) back in 2016. The new all-time high of $20.43 could easily be surpassed despite shares tracking below $20 in the afternoon session. It's pretty much off to the races if management keeps the heat up by releasing better projections or updates on its AI server segment over the next weeks and months.
The previous quarter's earnings announcement sent shares soaring back on March 6 as well, but Wednesday's new high beat out the previous $20.07 high. If recent months' experience is anything to go off of, HPE stock will consolidate. Shares found support in March and May in the vicinity of $16.26 and $16.50.
It is also possible that recent resistance near $19.00 will turn that level into point of support moving forward.
HPE daily stock chart
Premium
You have reached your limit of 3 free articles for this month.
Start your subscription and get access to all our original articles.
Author
Clay Webster
FXStreet
Clay Webster grew up in the US outside Buffalo, New York and Lancaster, Pennsylvania. He began investing after college following the 2008 financial crisis.
