HP Enterprise (NYSE:HPE) headquartered in Silicon Valley has made a significant move into the artificial intelligence arena, catching the attention of Wall Street analysts. The company reported strong fiscal second-quarter results, with its server segment experiencing a notable jump in revenue. The company’s largest segment saw an 18% increase year over year to $3.9 billion, with AI revenue doubling sequentially, surpassing previous expectations.
While this segment showed strength, other areas such as Intelligent Edge and hybrid cloud experienced declines compared to the previous year. Despite this, HP Enterprise’s stock surged over 16% in pre-market trading. The company also disclosed its collaboration with Microsoft and OpenAI to provide additional infrastructure capacity and AI-related services, which was seen positively by analysts.
UBS analyst David Vogt raised his price target on HP Enterprise to $17, noting that while the company raised its revenue guidance for the fiscal year, the increase was mainly driven by the server segment, which could put pressure on gross margin. Vogt believes that lower operating expenses will help drive operating margins in FY24 compared to FY23.
Bernstein analyst Toni Sacconaghi shared a similar sentiment regarding the strong AI server revenue but expressed concerns about the weakness in reservations and HP Enterprise’s ability to sustain growth beyond FY24. Sacconaghi also raised doubts about the company’s focus on integrating its acquisition of Juniper, potentially affecting its traditional business shares. He has a Market Perform rating and a $19 price target on HP Enterprise.
On the other hand, Morgan Stanley analyst Meta Marshall displayed a more optimistic view, stating that the margin profile of AI servers might not be as detrimental to the business model as previously thought. Marshall has an Equal Weight rating on HP Enterprise and raised her price target to $21 following the company’s performance and guidance.
In conclusion, HP Enterprise’s foray into artificial intelligence has garnered attention from analysts, with some expressing optimism about its future prospects based on strong server revenue. However, concerns remain about the sustainability of this growth and the company’s ability to navigate potential challenges in the evolving AI landscape.
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