As earnings season reaches its peak, several tech giants have reported fourth-quarter results that failed to lift the stock market. In this volatile environment, each quarterly report has the power to dramatically shift market sentiment, prompting many companies to recalibrate their strategies.

Recently, tech giant Hewlett Packard Enterprise (HPE), a key rival to Super Micro Computer (SMCI), grabbed attention with its earnings confessional. The company disappointed investors with a weaker-than-expected fiscal Q2 outlook and announced plans to cut 2,500 jobs, adding to concerns about its future growth. Consequently, HPE’s stock tumbled by nearly 12% on March 7, its steepest decline since 2020, as investors reacted to forecasts marred by tariff pressures, diminishing margins on server sales, and ongoing execution challenges. 

With the broader market still reeling from underwhelming reports from other tech giants, the pressing question remains: Does this pivotal shift signal a potential turnaround opportunity or serve as a warning sign for investors?

About HPE Stock

Based in San Jose, California, Hewlett Packard Enterprise (HPE) is a leading global technology company that specializes in providing innovative enterprise IT solutions. The company is dedicated to delivering robust IT infrastructure, hybrid cloud services, and advanced data management systems, empowering organizations to drive digital transformation and streamline operations. HPE also commands a hefty market cap of $20.8 billion.

After hitting an all-time high of $24.66 on Jan. 22, shares of HPE have pulled back nearly 40%. This significant selloff is linked to broader market headwinds, with the latest quarterly results further exacerbating the decline. Overall, the stock is down 29% year-to-date.

Following that major chop, HPE stock is trading at a very attractive valuation. The company trades at a forward price-earnings (P/E) ratio of 9.7x and a price-sales (P/S) ratio of 0.78x, substantially below the sector averages of 22.6x and 2.83x, respectively. The stock also presents a modest discount compared to its own 5-year historical average.

HPE Delivered Mixed Q1 Results

Last week, HPE reported Q1 earnings for its fiscal 2025, exceeding analysts’ estimates on the top line but missing on earnings. The company’s revenue jumped 17% year-over-year in constant currency to $7.85 billion, driven by a 29% surge in its server segment and a 10% uplift in its hybrid cloud division.

HPE’s aggressive push into artificial intelligence also paid off, with $1.6 billion in net orders for AI systems and enterprise AI orders climbing 40% year-over-year. However, gross margins slipped by 720 basis points to 29.2%, highlighting ongoing pricing pressures in a competitive market.

On the profitability front, adjusted EPS came in at $0.49, missing estimates by $0.05, though GAAP net income soared 52% year-over-year. 

Moreover, HPE also faced liquidity challenges, burning through $877 million in free cash flow. Nonetheless, the company ended the quarter with roughly $2.1 billion in cash and equivalents, providing a cushion as it works to stabilize margins and optimize costs.

During the earning call, the company announced that over the next 18 months, it will implement a cost-reduction initiative that includes layoffs, aiming for $350 million in gross savings by fiscal year 2027. A spokesperson stated that approximately 2,500 employees, about 5% of the workforce including anticipated attrition, will be affected.

Looking ahead, management issued a cautious Q2 outlook, expecting sales between $7.2 billion and $7.6 billion, below Wall Street’s $7.9 billion consensus estimate. The company forecast non-GAAP EPS between $0.28 and $0.34. For the full fiscal year, HPE anticipates revenue growth of 7% to 11%, targeting total revenues of $32.2 billion to $33.4 billion, slightly above the Street’s consensus of $32.5 billion. 

Meanwhile, several analysts have nudged their full-year EPS estimates upward to around $1.85, banking on HPE’s initiatives to streamline operations and expand market share in high-growth segments.

Driving Sustainable Growth in Enterprise AI

HPE is reshaping enterprise AI by targeting smaller, specialized model builders rather than competing directly with giants like Google (GOOG), Amazon (AMZN), and Microsoft (MSFT). Instead of building its own AI infrastructure, HPE offers a flexible pay-as-you-go solution that appeals to start-ups and niche players in healthcare, law, and cybersecurity.

Central to this strategy is the GreenLake platform, which integrates storage, networking, and servers into one package, allowing customers to pay only for what they use. This approach eliminates the heavy upfront costs typically associated with AI infrastructure.

HPE has also forged partnerships with AI service providers to offer turnkey solutions that simplify AI integration for companies with limited in-house expertise. 

What Do Analysts Think About HPE Stock?

Following a mixed first-quarter performance, several analysts have revised their price targets on HPE stock. Susquehanna downgraded HPE from $20 to $15, citing “poor execution” in the company’s platform-as-a-service strategy. Analysts pointed out that the quarterly earnings miss was driven by unanticipated pricing pressure from aggressive discounting on traditional servers, which led to operating margins falling short of expectations.

Barclays also trimmed its price target from $27 to $20, highlighting a 200-basis-point gross margin shortfall as particularly concerning amid ongoing execution challenges in the traditional server segment.

Despite these bearish notes, HPE continues to hold a consensus “Moderate Buy” rating from 15 Wall Street analysts. The average 12-month price target is set at $23.29, suggesting 54% upside potential from the current price. 

The Bottom Line on HPE Stock 

HPE’s Q1 performance demonstrated strong revenue growth in servers and hybrid cloud despite margin pressures and cost-cutting measures that weighed on its stock. The company’s aggressive push into enterprise AI and strategic partnerships positions it for a potential turnaround. Additionally, the recent stock decline could present a buying opportunity for investors looking to capitalize on the dip.