Hewlett Packard Enterprises hopes to unlock the value of AI servers

What to do Super Micro Computers Inc. NASDAQ:SMCI, Dell Technologies Inc. NYSE: DELL AND Hewlett Packard Enterprise Co. NYSE: HPE to have in common? They’re all in the computer and technology industry, and they all make artificial intelligence (AI) servers. Everyone uses predominantly Nvidia Co. NASDAQ:NVDA GPU for their AI servers but they also use Advanced Micro Devices Inc. NASDAQ:AMD and even Intel Inc. NASDAQ: INTC graphics processing unit (GPU) due to supply constraints.

Is the assessment late?

What don’t they have in common? Assessment. Super Micro Computers shares are trading at 57.99x forward earnings. Dell Technologies shares are trading at 18.54X forward earnings. Hewlett Packard Enterprises shares trade at just 9.67 times forward earnings. Sure, Super Micro and Dell have acknowledged that their AI server business is on the rise as they blew away EPS estimates.

Dell noted that its AI servers have a $2 billion backlog and can’t keep up with demand. On the other hand, Hewlett Packard has seen demand for its campus networking products deteriorate in Europe and Asia. However, its demand for AI has been strong but hurt due to GPU supply issues. Check the heat map of the sector on MarketBeat.

Distraction for the acquisition of juniper

The market may also be distracted by Hewlett Packard’s January 2024 announcement to acquire the networking giant Juniper Networks Inc. NYSE: JNPR for $40 per share or $14 billion. The move is designed to strengthen Hewlett Packard’s footprint in the AI ​​native networking segment. This will double Hewlett-Packard’s networking business, which will be bolstered by Juniper’s traditionally strong margins.

It provides its enterprise customers with a one-stop solution for storage and networking needs, including wireless, wired and cloud-based solutions. Hewlett Packard is solidifying its opportunity to provide a cutting-edge AI-powered network framework, enabling companies to train and deploy AI applications. The deal is expected to close between late 2024 and early 2025.

Slow start to the new year

Hewlett Packard reported earnings per share of 3 cents in its fiscal first-quarter 2024 earnings of 48 cents versus consensus analysts’ estimate of 45 cents. Revenue fell 13.5% year over year to $6.75 billion, missing analysts’ estimates of $7.09 billion. Annualized rate of return (ARR) increased 42% year over year to $1.4 billion. GAAP gross margins grew 240 basis points to 36.4%.

The server business fell 23% year over year to $3.4 billion. Intelligent Edge revenue fell 3% year over year to $1.2 billion. Hybrid cloud revenue fell 10% year over year to $1.2 billion. Financial services revenues remained stable year over year at $873 million.

Lower the bar

Hewlett Packard Enterprises delivered fiscal second-quarter 2024 earnings per share down to 36 cents to 41 cents versus consensus analyst estimates of 45 cents. Revenues are expected to be in the range of $6.6 billion to $7 billion versus consensus estimates of $7.12 billion.

Full-year 2024 EPS is expected to be between $1.82 and $1.92 versus consensus estimates of $1.92. Revenue is expected to remain stable, increasing 2% year-over-year from $29.135 billion to $29.718 billion versus consensus estimates of $29.45 billion.

Anthony Neri, CEO of Hewlett Packard Enterprises, commented: “Despite a mixed quarter, I remain very confident that our focus on customer-centric innovation and our track record of operational discipline will allow us to capitalize on significant market opportunities in the field of artificial intelligence and cutting-edge markets. and hybrid cloud and to deliver value to our shareholders.”

History of the acceleration of the second half

Hewlett Packard has merged its computing, high-performance computing (HPC) and artificial intelligence segments into a single server segment, placing its hybrid cloud products into a single business segment. The key is the supply of AI chips, which is expected to normalize in the second half of 2024. This should accelerate the AI ​​server business. Large GreenLake deals are also expected to materialize in the second half of 2024. GreenLake is its edge-to-cloud platform.

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Descending triangle daily breakout

The daily candlestick chart on HPE illustrates the descending triangle breakout pattern. The descending upper trendline began at the high of $17.80 on January 8, 2024, ending each rally attempt at a lower high. The flat lower trend line at $14.80 appeared to break upon the release of Q1 2024 earnings, hitting $14.47, before sharply reversing higher on March 1, 2024. This led HPE to break the line trending downward for the next three days, reaching an all-time high level of $20.07 before pullbacks settled in the $17 to $18 price range. The daily relative strength index (RSI) rose from 40 band to 82 band before sharply reversing course to test the overbought 70 band. Pullback supports are at $17.48, $16.59, $15.56 and $14.80.

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