HPE shares flush lower post-earnings; Is the bottom in?
3min read Hewlett Packard Enterprise (HPE) reported fiscal first-quarter earnings that were in line with expectations on the bottom line but slightly ahead on revenue. The company posted adjusted earnings per share (EPS) of $0.49, matching analyst estimates, while revenue came in at $7.85 billion, slightly exceeding the consensus estimate of $7.82 billion. Despite this modest revenue beat, guidance for the upcoming quarter and the full fiscal year fell well short of expectations, sending shares down 12% after hours. The stock had already been under pressure heading into the report, raising the key question for investors: Is this post-earnings decline a buying opportunity, or does the pain continue?
HPE’s outlook was the most concerning aspect of the report. For the second quarter, the company guided revenue between $7.2 billion and $7.6 billion, well below the $7.93 billion consensus estimate. More concerningly, it projected adjusted EPS of just $0.28 to $0.34, far below the $0.50 that analysts had anticipated. The full-year guidance painted a similarly grim picture, with hpe forecasting EPS in the range of $1.70 to $1.90, compared to the consensus estimate of $2.13. The company expects revenue growth of 7% to 11% in constant currency, but with operating profit forecasted to decline by as much as 10%, investors are questioning whether revenue expansion will translate into meaningful earnings growth.
A key issue weighing on HPE is intense pricing pressure in the traditional server market. CEO Antonio Neri acknowledged that the company faced higher-than-normal inventory levels for artificial intelligence (AI) servers as it transitions to next-generation Blackwell GPUs from Nvidia. Meanwhile, extensive discounting in traditional server products weighed on margins. Server revenue for the quarter was $4.29 billion, with AI-related backlog climbing to $3.1 billion, up 29% from the previous quarter. However, AI server revenue dropped 40% sequentially, reflecting slowing demand and an increasingly competitive environment. HPE's finance chief Marie Myers noted that aggressive pricing in traditional servers was a major drag on profitability and warned that further adjustments might be necessary, potentially impacting top-line growth in the near term.
In response to these pressures, HPE announced a cost-cutting program that includes laying off approximately 2,500 employees, or about 5% of its workforce when including expected attrition. The initiative aims to generate $350 million in gross savings over the next three years, with an additional $450 million in potential cost synergies if the company successfully closes its planned acquisition of Juniper Networks. Together, these initiatives could contribute roughly $0.60 per share in earnings, which is meaningful in the context of HPE’s struggling margins. However, analysts at Bank of America (BAML) cautioned that the need for cost-cutting despite revenue growth signals a more challenging pricing environment than previously anticipated, which could prove to be a structural issue rather than a temporary headwind.
The guidance disappointment prompted analysts to cut their price targets on HPE stock, though some remain cautiously optimistic. BAML reiterated its Buy rating but slashed its price target from $26 to $20, citing lower short-term operating margins and revenue revisions. The firm moved its valuation multiple down from 10x to 9x estimated calendar year 2026 EPS of $2.10, reflecting near-term challenges. Evercore ISI analysts also lowered their price target from $22 to $17, pointing to a combination of weak execution and near-term pressures in AI servers. Meanwhile, Susquehanna analysts cut their price target to $15 from $20 and maintained a Neutral rating, emphasizing concerns over margin erosion and product diversification.
One overhang for HPE remains its pending $14 billion acquisition of Juniper Networks, which the U.S. Department of Justice is attempting to block on antitrust grounds. The court case is expected to go to trial in July, with a resolution unlikely before late 2025. HPE remains confident the deal will close, but regulatory uncertainty adds another layer of risk for investors. If successful, the acquisition could strengthen HPE’s networking segment and bolster its AI strategy, but if blocked, the company will need to reassess its long-term growth plans in an increasingly competitive landscape.
Another challenge HPE faces is the impact of tariffs, which could further pressure margins. Neri acknowledged that HPE will need to adjust pricing to reflect increased costs, though he expressed confidence that the company’s global supply chain would help mitigate some of the impact. Still, with the U.S.-China trade environment remaining volatile, uncertainty around input costs and pricing strategy will persist in the coming quarters. Sales outside the U.S. accounted for 64% of HPE’s total revenue in fiscal 2024, meaning that geopolitical and trade policy developments will continue to be key factors influencing performance.
The big question for investors is whether the post-earnings selloff marks the bottom for HPE stock or if further downside is ahead. With shares now trading at just 7x estimated 2026 earnings, some analysts argue that the valuation is too cheap to ignore, particularly given potential upside from AI-driven growth over the long term. However, with weak guidance, margin pressure, and pricing concerns dominating the near-term narrative, investors may need to exercise patience before expecting a meaningful recovery. The next few quarters will be critical in determining whether HPE can stabilize its business, improve execution, and demonstrate that it can turn revenue growth into sustainable earnings expansion.