HPE.US (HPE.US) performance sparks differences of opinion on Wall Street: Damo is concerned about pressure on profits, Evercore and Xiaoma remain bullish

On Friday, HPE.US (HPE.US) once again became the focus of the market with mixed results and guidance for the fourth quarter.

The Zhitong Finance App learned that Morgan Stanley analyst Erik Woodring pointed out that rising commodity costs are still a major concern. Although management expressed confidence in passing on the cost increase to customers, he emphasized that this was extremely challenging. He wrote in the research report that although HPE has locked in memory supply, it has not yet locked in price, so demand elasticity still needs to be “observed.” Woodring said, “In our opinion, it is difficult for hardware vendors to smoothly pass on price increases while maintaining profit margins without affecting demand.” He expects the company's profit margins to come under more pressure in the 2026 fiscal year.

He also mentioned that the pace of the company's AI server business will be “more uneven” than the market had previously anticipated. HPE's server business fell short of expectations this quarter, mainly due to delays in AI server delivery and weak US government orders. Of these, two-thirds are due to AI server delays, and one-third are due to weak federal business. HPE expects these delays to be converted into revenue for the next fiscal quarter, but at the same time, the company is still providing a full-year guideline that relies more on the second half of the year, and suggests that AI construction needs of some sovereign and corporate customers may be delayed until the 2027 fiscal year.

In contrast, Evercore ISI analyst Amit Daryanani is more optimistic. He maintains a “outperforming the market” rating and a target price of $28, and believes investors should “ignore the short-term noise.” He pointed out that although revenue fell short of expectations, HPE's predictions for the next few years had little impact. Factors such as delays in AI servers and pressure on third-party storage services have caused fluctuations, but he stressed that the company's network business contributed about 50% of profit before interest and tax, which will provide HPE with stronger profit stability in this cycle, but attention still needs to be paid to whether supply can continue.

J.P. Morgan analyst Samik Chatterjee expressed similar views. He believes that although the pace of the AI server business appears to fluctuate, the company's progress in the network business may be underestimated by the market. He confirmed management's ability to implement the guidelines and pointed out that despite the sharp rise in prices for several product lines, the company maintained its previous revenue expectations for fiscal year 2026, which meant that HPE assumed that higher average sales prices would offset some of the decline in shipments. He wrote that this is different from customer behavior during past tight supply cycles (such as during the COVID-19 pandemic), showing management's confidence in the increase in profits brought about by the online business.

Chatterjee maintained an “outperforming the market” rating and gave a target price of $30. He believes that against the backdrop of pressure on profit margins and a slowdown in AI order conversion, the company is still raising its profit and cash flow forecasts, which is a positive sign of management's confidence.