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HPE Stock Climbs 34% in a Year: Hold Tight or Time to Let Go?
HPEHPE(HPE) ZACKS·2025-01-09 17:16

Core Viewpoint - Hewlett Packard Enterprise Company (HPE) has shown exceptional performance over the past year, with a stock increase of 34.1%, significantly outperforming its peers and major indices [1][2]. Group 1: Performance and Growth Drivers - HPE's stock performance has outpaced the Zacks Computer - Integrated Systems, Zacks Computer and Technology sector, and the S&P 500 index, which returned 8.5%, 33.4%, and 24.9% respectively [1]. - The growth has been primarily driven by strong performance in key segments, particularly GreenLake and artificial intelligence (AI) systems, with a notable increase in customer adoption [3]. - GreenLake's customer base expanded by approximately 34.5% year over year, reaching 39,000 in Q4 of fiscal 2024, contributing to an annualized revenue run rate that increased 48% year over year, exceeding 1.9billion[4].Group2:AISystemsandOrders−HPEreportedcumulativeordersforAIproductsandservicesamountingto1.9 billion [4]. Group 2: AI Systems and Orders - HPE reported cumulative orders for AI products and services amounting to 6.7 billion since Q1 of fiscal 2023, with new AI orders in Q4 of fiscal 2024 increasing backlogs to 3.5billion[5].Group3:ValuationMetrics−HPE′sstockistradingataforward12−monthprice−to−earnings(P/E)ratioof10.31,significantlylowerthantheindustryaverageof19.39,andaforward12−monthprice−to−sales(P/S)ratioof0.89comparedtotheindustryaverageof3.34,indicatingapotentiallyattractiveinvestmentopportunity[6].Group4:ChallengesandMarketOutlook−DespitethepositivegrowthinAIandGreenLake,HPEfacesnear−termchallengesduetosofteningITspending,higherinterestrates,andinflationarypressuresaffectingconsumerspending[9].−TheIntelligentEdgedivisionexperienceda203.5 billion [5]. Group 3: Valuation Metrics - HPE's stock is trading at a forward 12-month price-to-earnings (P/E) ratio of 10.31, significantly lower than the industry average of 19.39, and a forward 12-month price-to-sales (P/S) ratio of 0.89 compared to the industry average of 3.34, indicating a potentially attractive investment opportunity [6]. Group 4: Challenges and Market Outlook - Despite the positive growth in AI and GreenLake, HPE faces near-term challenges due to softening IT spending, higher interest rates, and inflationary pressures affecting consumer spending [9]. - The Intelligent Edge division experienced a 20% year-over-year revenue drop in Q4 of fiscal 2024, attributed to inventory accumulation among customers and softer demand for switching and campus solutions [10]. - HPE's gross margin contracted by 390 basis points year over year to 30.9%, influenced by a low mix of high-margin Intelligent Edge revenues [11]. - The financial services division reported a modest 2% year-over-year revenue growth of 893 million in Q4 of fiscal 2024, reflecting the overall softness in IT spending [12]. Group 5: Financial Estimates - The Zacks Consensus Estimate for fiscal 2025 earnings has been revised downward to 2.10,andforfiscal2026to2.10, and for fiscal 2026 to 2.28, indicating a lack of strong financial recovery in the near term [13]. Group 6: Conclusion - HPE's growth in GreenLake and AI indicates long-term potential, but current challenges necessitate a cautious approach, suggesting that holding the stock is advisable for now [15].