Truist Securities has raised the target price of HP Enterprise ( HPE ) from $70 to $75 and maintained a "buy" rating. The firm believes that the company's networking business is accelerating integration and realizing synergies, while demand for cloud computing and AI continues to drive growth in the server business. These factors are improving HPE's profit prospects over the next few years.
Analyst Matthew Niknam pointed out that the market currently does not fully recognize the value of HPE's network business. As the scale of related businesses expands, synergies are gradually realized, and profit margins increase, HPE is transitioning from a traditionally-oriented hardware company to a more balanced business portfolio that includes networks, servers, and AI infrastructure.
Online services have become a new source of valuation support.
Truist What is emphasized most this time is the changes in HPE network services.
As business integration progresses, the scale of the network segment, its profit margin, and its synergy with other enterprise infrastructure businesses are all increasing. Compared to traditional server hardware, network services generally have higher profit margins and better revenue quality; therefore, an increase in their proportion is expected to improve the overall profitability structure of HPE.
Truist believes that the market still views HPE in accordance with the valuation methods of traditional hardware companies, and does not fully reflect the importance of network business in the future profit composition.
This is also why the institution believes that there is still room for a further revaluation of the current valuation of HPE.
AI and cloud services continue to support server growth
Apart from internet services, cloud computing and the infrastructure requirements of AI remain an important driving force for the growth of HPE server business.
Truist pointed out that the rapid increase in AI and cloud workloads is driving enterprises and data centers to continue expanding their server purchases. In HPE's previously announced third-quarter results for the fiscal year 2026, Cloud & AI's business revenue and profit margins both exceeded expectations, further verifying this trend.
Therefore, HPE is not currently relying on single-business growth alone; rather, it is benefiting from the integration of online services, server demand, and infrastructure investments in AI.
This business structure also makes the company's future profit growth more balanced.
Truist expects a 22% growth in the fiscal year 2027 EPS
Truist expects that HPE earnings per share will grow by 22% in the fiscal year 2027, and thereafter, EPS is still expected to maintain double-digit compound growth.
This prediction implies that the current improvement in the company's profitability is not just a one-time cyclical rebound, but is expected to continue for a longer period of time.
Driving factors include improved profit margins in online services, growth in demand for AI servers, and a shift in the business portfolio towards higher-profit segments.
Meanwhile, HPE has recently raised its performance guidance for the fiscal years 2026 and 2027, further enhancing Truist's confidence in profit growth.
Free cash flow returns are also increasing.
Truist also expects that starting from the fourth quarter of fiscal year 2026, HPE will return more than 75% of its free cash flow to shareholders.
This means that as business integration gradually enters a stable phase, the company may have more room for capital returns in the future, such as dividends and stock repurchases.
For HPE, which has already experienced a significant increase, a higher cash return ratio can also provide additional support for its valuation.
Valued between traditional hardware and internet companies
Truist is currently valuing HPE at 11 times the earnings per share for the year 2028.
The institution pointed out that the price-earnings ratio for pure hardware companies in 2028 is typically around 8 to 15 times, while network companies generally fall within the range of 15 to 25 times.
HPE is currently transitioning gradually from a traditional hardware model to a network and infrastructure platform, therefore Truist believes that its reasonable valuation should also gradually move closer to that of a network company, rather than remaining in the range of a pure hardware company.
The valuation assumption of 11 times is still considered to be on the lower end for both types of companies, which is also why the institution believes that a target price of $75 is not overly aggressive.
Market disagreements still focus on valuation and revenue realization.
However, there are still significant differences in the opinions of other institutions regarding HPE.
Goldman Sachs previously maintained a ‘Buy’ rating and a target price of $75, believing that the Cloud and AI businesses and profit margins performed strongly. In contrast, due to concerns about the speed of revenue conversion, Goldman Sachs lowered the target price for Wells Fargo from $67 to $54, while maintaining a ‘Hold’ rating.
After a significant increase in stock prices, Evercore ISI downgraded the rating of HPE from "outperforming the market" to "in line with the market," with the main reason being that the valuation has clearly expanded.
Therefore, the current core dispute surrounding HPE is no longer about whether AI and online business will grow, but whether this growth can ultimately be converted into revenue, profit, and cash flow fast enough to support a higher valuation multiple.
The judgment of Truist is that the coordination of online services, the requirements of AI servers, and the desire for higher shareholder returns are all simultaneously improving the profitability of HPE. Therefore, it is no longer appropriate to value the company solely in the manner of a traditional hardware enterprise.
