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Hewlett Packard Enterprise: The Undervalued Tech Leader Poised for Growth

Nathaniel StoneFriday, May 2, 2025 6:16 pm ET

43min read

In a tech landscape dominated by high-flying giants like nvidia and Microsoft, Hewlett Packard Enterprise (HPE) has flown under the radar—despite its position as a key player in enterprise infrastructure, AI, and hybrid cloud solutions. With a P/E ratio trailing peers by over 80%, HPE presents a compelling value proposition for investors seeking exposure to a company strategically positioned for long-term growth. Let’s dissect the data to uncover why this overlooked tech stock could be primed for a comeback.

A Hidden Gem in Enterprise Tech

HPE’s recent financials reveal a company transitioning from legacy hardware to high-margin services, though not without growing pains. In fiscal Q1 2025, revenue rose 16% to $7.9 billion, driven by surging server sales (+29%) and Hybrid Cloud growth (+10%). Yet, gross margins contracted sharply (down 720 basis points YoY), and free cash flow turned negative, signaling operational headwinds.

Strategic Bets on AI and Edge Computing

HPE’s growth engine lies in its edge-to-cloud strategy, focused on three pillars:
1. Intelligent Edge: This segment grew 41% in FY2023, with margins hitting 29.5%—a testament to its leadership in distributed computing and IoT.
2. Hybrid Cloud: HPE GreenLake, its as-a-service platform, now boasts a $2.1 billion Annualized Revenue Run-Rate (ARR), up 45% YoY.
3. AI Infrastructure: HPC & AI revenue jumped 37% in FY2023, with demand fueled by enterprises adopting AI workloads.

These segments are not just incremental—they’re reshaping HPE’s business. CFO Jeremy Cox recently noted, “We’re seeing exploding customer interest in AI,” which aligns with its goal of a 35%+ CAGR for ARR through 2026.

Valuation: A Discounted Leader

HPE’s stock has underperformed the tech sector, declining 5% over 12 months while the S&P 500 rose 8.7%. This disconnect creates opportunity:

P/E Ratio: HPE trades at 7.8x (2025 estimates), vs. 46.2x for peers like NVIDIA and 25.8x for Cisco Systems. Analysts estimate its “fair value” at $19.3, implying a 21.8% upside from current prices.
Market Cap: At $21.56 billion, HPE is dwarfed by peers like Cisco ($235B) but remains a mid-tier player with sustainable margins and a $35B enterprise value.

The activist stake by Elliott Management ($1.5B) in April 2025 underscores investor confidence in HPE’s undervalued assets.

Risks and Challenges

Margin Pressures: Server margins fell to 8.1%, and cost reductions ($350M by 2027) are critical to restoring profitability.
Juniper Merger Uncertainty: The $6.5B acquisition faces a U.S. antitrust trial in July 2025. A favorable outcome could unlock synergies in networking; a rejection would delay growth.
Competition: Cloud giants like AWS and Microsoft Azure threaten HPE’s hybrid cloud market share.

The Bull Case: A Turnaround in the Making

HPE’s path to outperformance hinges on executing its strategy:
- Cost Cuts: The $350M savings program aims to offset margin declines and boost free cash flow (targeted at $1B in FY2025).
- Juniper Synergy: If approved, the merger would combine HPE’s AI/data center expertise with Juniper’s networking leadership, creating a $20B+ hybrid IT powerhouse.
- Shareholder Returns: A $0.13 dividend (yielding 0.8%) and buybacks ($223M in Q1 2025) signal commitment to value creation.

Analysts project EPS to rebound to $1.82 in FY2026 from a dip to $1.52 in FY2025, with a consensus “Moderate Buy” rating.

Conclusion: A Strong Buy at Current Levels

HPE’s valuation is deeply discounted relative to its peers and growth trajectory. With $2.2B in free cash flow in FY2023, a $19.86 price target (21.8% upside), and strategic moves in AI and edge computing, the stock offers asymmetric upside.

While risks like margin pressures and regulatory hurdles exist, the Juniper merger’s success could catalyze a re-rating. For investors willing to look beyond the headlines, HPE represents a rare opportunity to buy a $20B+ enterprise at 7.8x earnings—a valuation last seen during the 2022 tech selloff.

Final Take: HPE is a compelling “buy” for patient investors, with catalysts including cost discipline, AI adoption, and a potential Juniper merger win. The data points to a stock undervalued by the market, poised to climb as its strategic bets pay off.

Data sources: HPE Q1 2025 earnings, Simply Wall St, TechAnalytics, and company presentations.

Disclaimer: the above is a summary showing certain market information. AInvest is not responsible for any data errors, omissions or other information that may be displayed incorrectly as the data is derived from a third party source. Communications displaying market prices, data and other information available in this post are meant for informational purposes only and are not intended as an offer or solicitation for the purchase or sale of any security. Please do your own research when investing. All investments involve risk and the past performance of a security, or financial product does not guarantee future results or returns. Keep in mind that while diversification may help spread risk, it does not assure a profit, or protect against loss in a down market.