TLDR
- Raymond James downgraded HPE from “Strong Buy” to “Outperform” on Monday, citing less certainty around growth.
- The firm lowered its price target to $29 from $30 but still views HPE as an attractive value stock.
- HPE’s Cloud & AI segment has not delivered the growth analysts expected, partly due to a deliberate focus on margins over market share.
- The company’s networking segment shows some promise but faces challenges in campus networking and Juniper integration.
- Raymond James expects only mid-single-digit revenue growth for HPE over the coming years.
Hewlett Packard Enterprise (HPE) stock dropped more than 3% on Monday after Raymond James cut its rating on the stock, pointing to a murkier growth picture than previously expected.
Hewlett Packard Enterprise Company, HPE
The firm moved HPE from “Strong Buy” to “Outperform” — still positive, but a step down that the market clearly noticed. Analyst Simon Leopold and his team cited “less certainty around growth and catalysts” as the main driver behind the change.
HPE fell about 1% in premarket trading before extending those losses once the session opened.
The downgrade does not reflect a loss of faith in HPE’s fundamentals. Raymond James still thinks the stock is cheap, trading at forward price-to-earnings ratios below many industry peers. But the firm was clear: a low valuation alone is not enough to hold a top rating without a clearer path to growth.
AI Strategy Is Holding Back Growth
The Cloud & AI segment was supposed to be HPE’s big engine. It has not played out that way. Leopold’s team noted that management has chosen to target sovereign and enterprise customers over large cloud service providers and model builders — a decision that protects margins but shrinks the addressable market.
“While we think HPE’s choice to focus on AI profits over market share makes sense for the company, this strategy impacts growth but protects margin,” the analysts wrote.
That trade-off is real. By staying out of large-scale AI infrastructure races, HPE avoids the brutal pricing pressure that comes with chasing hyperscaler deals. But it also means the company is not riding the wave of the biggest AI spending cycle in years.
Raymond James also trimmed its financial estimates, flagging uncertainties around demand, pricing elasticity, and supply constraints — including memory shortages.
Networking: Promise, But Not Yet Delivering
HPE’s networking segment gets a more measured take. The firm sees potential there, especially in data center networking tied to AI workloads. But the campus networking sub-segment has underperformed, and the integration of Juniper has created additional drag.
Those two headwinds together have kept the networking unit from becoming the growth catalyst it could be.
On the Supermicro angle, Leopold’s team noted that while HPE could theoretically pick up customers looking to move away from Supermicro following a recent federal indictment linked to the company, they think Dell and Gigabyte are better positioned to capture that business.
The revised price target of $29, down from $30, still implies upside from current levels. Raymond James expects revenue to grow in the mid-single digits over the next few years, with the long-term story hinging on whether HPE’s AI and as-a-service strategies can gain enough traction to move the needle.
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