Hewlett Packard Enterprise shares surged to a record Wednesday, adding nearly $3 billion to the group's market value, as analysts raced to reset their ratings and price targets following an impressive quarterly earnings report.
Hewlett Packard Enterprise (HPE) , the services-focused division spun out of the former Hewlett Packard in 2015, has focused on developing its AI potential under CEO Antonio Neri as businesses ramp their tech spending and demand for new products accelerates.
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HPE said new orders for AI systems reached $4.6 billion over the three months ended in April, and added that revenue and profit growth would extend into the second half thanks in part to "ongoing improvement in the traditional infrastructure market, including servers, storage and networking."
The group is also partnering with Nvidia (NVDA) , the undisputed leader in artificial intelligence chips and processors, to design and develop systems that use HPE data.
"AI is creating growing demand across our portfolio and we see significant opportunities across customer and business segments," Neri told investors on a conference call late Tuesday.
"Our competitive advantages from deep expertise in standing up AI systems, to our differentiated HPE GreenLake cloud, to our networking storage offerings position us well."
HPE's second quarter revenue rose 6.3% from the same period last year to $7.2 billion, with AI system product revenue more than doubling to $900 million.
AI revenue boost
The group's bottom line fell 19% from last year to 42 cents per share, but the figure topped Wall Street's 39 cent forecast.
Looking into the current quarter, Neri said the group was targeting revenue in the region of $7.4 billion to $7.8 billion, with adjusted earnings of 43 cents to 48 cents a share.
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"HPE didn't come up in industry conversations, and even a month ago it would be hard to imagine they would do $900 million in AI revenue, and it feels like bulls think the company is guiding conservatively," JP Morgan analysts wrote Wednesday.
The upgraded forecast, as well as the optimistic tenor of Neri's post earnings call, has analysts making notable changes to their HPE price targets, taking the median level $4 higher to $22 a share.
The changes include a $3 boost to $22 from Wells Fargo analyst Aaron Rakers, a $4 increase to $22 from Stifel analyst Matthew Sheerin and a $6 increase to $20 from Susquehanna analyst Mehdi Hosseini.
Still lagging rivals?
UBS analyst David Vogt, however, had a more cautious view on the second quarter earnings. He characterized the figures as "mixed" while noting the 9% slide in the group's AI systems backlog, which he said was "notably softer" than that of rival Dell Technologies (DELL) .
"For context, Dell recognized around $1.7 billion of AI server revenue while its backlog grew $900 million (sequentially) with backlog exiting the quarter at $3.8 billion, almost as much as HPE's cumulative orders."
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Vogt, who carries a $17 price target with a neutral rating on the stock, said HPE's nod to working with Microsoft (MSFT) to provide infrastructure capacity tied to OpenAI "mitigated what could be construed as a soft result."
Other price target changes include Bank of America Securities analyst Wamsi Mohan, who lifted it by $3, and Evercore ISI analyst Amit Daryanani, who added $4, both setting new levels of $22 a share for the group.
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Neri also teased the appearance of Nvidia CEO Jensen Huang at the group's HPE Discover Las Vegas on June 17.
"Together, we will unveil new exciting and differentiated innovations that will simplify and accelerate enterprise AI adoption and deployment," Neri said.
Hewlett Packard Enterprise shares were marked 13% higher in late Wednesday trading and changing hands at $19.90, extending the stock's year-to-date gain to around 17%.
The shares hit an all-time high of $20.43 earlier in the session.
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