HPE Earnings: We Lift Our Valuation on Stronger Short-Term Growth, but Shares Look Overvalued

We raise our fair value estimate for no-moat Hewlett Packard Enterprise to $17 per share from $16 after positive fiscal second-quarter results. Management raised its fiscal year guidance, and we now account for stronger growth from servers serving generative artificial intelligence applications over the medium term. The firm’s rising AI server sales mirror peers like Dell and Super Micro. We expect stronger growth here, but we don’t believe it will change the commodity-like nature of HPE’s server business or its no-moat rating. We also view AI servers as dilutive to HPE’s margin. Shares shot up as much as 15% after hours on positive AI results and the guidance raise, but we view the reaction as overexuberant. We see shares as overvalued.