HPE shares soar 28% as demand for AI infrastructure powers stellar quarter

Hewlett Packard ​Enterprise shares surged 28% on Tuesday after ​a rosy quarter that put ‌it on track ​to hit long-term financial targets two years ahead of schedule, the latest evidence of strong demand for its AI servers used ‌in data centers.

The gains, if sustained, would add around $17 billion to the company's market value of $62.36 billion. They follow strong forecasts from rivals Dell and Super Micro Computer as Big Tech presses ahead with ‌around $700 billion in AI spending this year. HPE's shares, which had nearly doubled this year ‌as of last close, are on track to record their biggest one-day percentage gain.

The insatiable demand from the AI industry has allowed server makers to pass on higher costs for supply-constrained memory chips to customers, shielding their margins. The ⁠firms said strong ​supplier ties are ⁠also helping them navigate the shortage. "The year of refresh" for enterprise IT equipment, AI modernization and product updates is also ⁠benefiting the companies, Piper Sandler analysts said in a client note.

"While HPE is seeing this tidal wave, ​we prefer to be in 'other boats' given exposures," Piper Sandler said. Dell shares were down ⁠around 2%, while those of Super Micro rose 6%. At least 12 brokerages raised their price targets on HPE's stock, ⁠giving ​it a median price target of $66, according to data compiled by LSEG. That is up from $26.50 before the report.

"The biggest takeaway from the quarter was that HPE is benefiting from ⁠the same pricing dynamic that has recently driven upside at Dell - customers are absorbing materially higher server ⁠prices with little ⁠evidence of demand destruction," Morgan Stanley analysts said. HPE has a 12-month forward price-to-earnings ratio of 15.66, compared with Dell's 23.92 and Super Micro's 14.49.

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