Digital Transformation And AI Will Fuel Secular Market Trends

Key Takeaways

• AI systems growth, rapid Juniper integration, and strong hybrid cloud momentum could drive earnings and margin outperformance sooner and at a higher level than forecast.
  
• Expanded infrastructure leadership and tailored security offerings are capturing new market share, positioning HPE for durable premium pricing and recurring high-margin revenue.
  
• Growing cloud migration, stiff competition, and regulatory burdens threaten HPE's margins and market share, while success depends on swiftly shifting to recurring, software-focused revenue models.

Catalysts

Provides solutions that allow customers to capture, analyze, and act upon data seamlessly in the Americas, Europe, the Middle East, Africa, the Asia Pacific, and Japan.

• Analyst consensus expects Juniper synergies of 450 million dollars, but HPE management is targeting at least 600 million dollars in cost synergies over three years with initial signs of rapid integration and potential to exceed mid-20% operating margins in networking, creating the possibility of margin expansion and EPS outperformance ahead of schedule.
  
• While analysts broadly expect accelerated AI-driven revenue growth in late 2025, the record 3.7 billion dollar AI backlog, multiple large-scale sovereign and enterprise AI deals, and a rapidly expanding pipeline across diverse geographies point to AI systems revenue and margin growth that could arrive sooner and at a larger scale than current forecasts imply.
  
• The surge in GreenLake cloud annual recurring revenue to over 3 billion dollars and the rapid conversion of proof-of-concepts in software-driven hybrid and private cloud solutions suggest the company's shift to a high-margin, recurring-revenue model is gaining momentum, enhancing revenue visibility and net margin structurally over the next several years.
  
• HPE is exhibiting stronger-than-expected market share gains in next-generation infrastructure, with triple-digit revenue growth in Alletra MP storage, leadership in campus and data center switching, and early dominance in Wi-Fi 7, all supported by robust global channel expansion, likely driving sustained revenue acceleration and share gains through at least 2027.
  
• Rapid digital transformation and rising cybersecurity and data sovereignty requirements are fueling demand for on-prem and hybrid IT solutions where HPE's integrated security, sovereign cloud, and agentic AI capabilities uniquely position the company to capture high-value workload migrations, supporting premium pricing and durable net margin expansion well beyond consensus expectations.

Hewlett Packard Enterprise Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Hewlett Packard Enterprise compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Hewlett Packard Enterprise's revenue will grow by 12.5% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 3.4% today to 11.0% in 3 years time.
• The bullish analysts expect earnings to reach $5.2 billion (and earnings per share of $3.56) by about September 2028, up from $1.1 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 10.7x on those 2028 earnings, down from 27.7x today. This future PE is lower than the current PE for the US Tech industry at 24.3x.
• Analysts expect the number of shares outstanding to grow by 1.6% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 10.02%, as per the Simply Wall St company report.

Hewlett Packard Enterprise Future Earnings Per Share Growth

Risks

• Accelerating enterprise migration to hyperscale public cloud providers and cloud-native architectures threatens to compress HPE's traditional on-premises hardware addressable market, which could limit long-term revenue growth and slow earnings expansion even as hybrid and private cloud offerings grow.
  
• The company faces persistent and intensifying competition from both traditional vendors such as Dell and Cisco, as well as cloud-centric firms like AWS and Azure, creating ongoing pricing pressures that may continue to erode gross margins and ultimately reduce net margins over time.
  
• HPE's dependence on hardware-intensive solutions and its exposure to rising ESG requirements and environmental regulations risk increasing compliance and operational costs, putting sustained pressure on profitability and threatening to shrink future margins.
  
• The successful shift toward recurring revenue models, such as as-a-service and software-driven offerings, remains a key challenge, and falling behind in this transition or in crucial innovation areas could impair the company's ability to stabilize its earnings and achieve predictable, growing cash flows.
  
• The rapid advancement of virtualization, edge computing, and vertically integrated cloud platforms, along with industry consolidation, risks marginalizing mid-tier infrastructure providers like HPE, potentially causing market share losses that diminish both future revenue and bargaining power with enterprise customers.

Valuation

• The assumed bullish price target for Hewlett Packard Enterprise is $30.0, which is the highest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Hewlett Packard Enterprise's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $30.0, and the most bearish reporting a price target of just $19.0.
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be $47.1 billion, earnings will come to $5.2 billion, and it would be trading on a PE ratio of 10.7x, assuming you use a discount rate of 10.0%.
• Given the current share price of $23.88, the bullish analyst price target of $30.0 is 20.4% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.