HPE: Networking And Supercomputing Partnerships Will Shape Outlook Amid Merger And Margin Risks

Analysts have modestly reduced their fair value estimate for Hewlett Packard Enterprise to $26.28 from $26.50, reflecting tempered expectations for revenue growth and profit margins, even as confidence in the companys networking and data center positioning supports a higher future earnings multiple.

Analyst Commentary

Recent research updates on Hewlett Packard Enterprise reflect a mixed but generally constructive view, with modestly higher price targets and one notable downgrade balancing out improving sentiment around networking and data center growth.

Bullish Takeaways

• Bullish analysts are incrementally raising price targets into the mid to high $20s, suggesting room for upside relative to current trading levels as execution in networking improves.
• Several firms highlight growing confidence in the company’s networking and data center switching outlook, particularly following the Juniper acquisition, which supports a higher long-term growth profile.
• Expectations for mid single-digit revenue growth and EPS approaching the mid-$2 range over the next couple of years underpin the view that earnings power is underappreciated in the current valuation.
• Improved sentiment and checks from the field are framed as evidence that the company is gaining momentum in strategic segments, potentially justifying a more premium multiple versus legacy hardware peers.

Bearish Takeaways

• Bearish analysts are concerned that a memory supercycle will pressure hardware margins heading into 2026, driving downside risk to earnings and limiting multiple expansion.
• Soft demand in non–artificial intelligence hardware is viewed as a headwind, raising the risk that growth outside of networking may undershoot current expectations.
• Some research maintains only Neutral or Market Perform stances, signaling that while the long-term story is credible, near-term execution and margin resilience still need to be proven.
• The prospect of lower gross margins across the broader hardware complex is cited as a factor that could trigger negative estimate revisions and valuation compression if cost pressures persist.

What's in the News

• The U.S. forms a $1 billion partnership with AMD, HPE, Oracle and Oak Ridge National Laboratory to build two DOE supercomputers, including Lux, an AI focused system based on AMD MI355X chips and HPE infrastructure, expected online within six months (Reuters)
• A federal judge allows state attorneys general to seek more information on the DOJ antitrust settlement over HPE’s $14 billion Juniper acquisition and to request a pause on further integration while the deal undergoes additional public interest review (Bloomberg)
• HPE raises full year fiscal 2026 GAAP EPS guidance to a range of $0.62 to $0.82 and reaffirms a revenue growth outlook of 17% to 22% along with sharply higher operating profit growth
• The board approves a 10% increase to HPE’s fiscal 2026 annual dividend and separately boosts the share repurchase authorization by $3 billion, lifting total buyback capacity to about $3.7 billion
• HPE issues first quarter fiscal 2026 guidance calling for $9.0 billion to $9.4 billion in revenue and GAAP diluted EPS of $0.09 to $0.13, which frames expectations for near term growth and profitability

Valuation Changes

• The fair value estimate has edged down slightly to $26.28 from $26.50, reflecting modestly softer assumptions for growth and profitability.
• The discount rate has decreased slightly to about 10.16 percent from 10.55 percent, implying a marginally lower perceived risk profile.
• Revenue growth has been revised down moderately to about 9.20 percent from 10.49 percent, signaling tempered expectations for top-line expansion.
• The net profit margin has fallen meaningfully to about 5.29 percent from 6.50 percent, indicating a more conservative view on future profitability.
• The future P/E has risen notably to about 19.8x from 16.4x, suggesting a higher expected earnings multiple despite the more cautious fundamental outlook.