Should I Buy Hewlett Packard Enterprise (HPE)? Finance YouTuber Analysis

The speaker notes that Hewlett Packard Enterprise also delivered strong results, with high double-digit growth, exceeding estimates. He acknowledges the strong performance in the sector but questions the sustainability of such growth.

“Julit Packard Enterprise hat ja jetzt äh auch vor zwei Tagen war das ja, glaube ich, haben sie jetzt auch noch mal Zahlen geliefert. die waren auch halt weit über den Schätzungen einfach hohes zweistelliges Wachstum”

The analyst favors Hewlett Packard Enterprise (HPE) over Dell due to HPE's stronger focus on data centers and enterprise solutions, which aligns better with the AI theme. Unlike Dell, HPE is less exposed to the consumer electronics market, where rising component costs are eroding profitability, making it a more attractive investment in the AI server space.

“I do still like HPE. It's got a little bit more of the data center and enterprise focus. Dell, like I was talking about earlier, is just too much in consumer electronics.”

HPE is considered a strong competitor in the high-performance AI server space, with a massive installed base and partnerships with Nvidia. Its products feature liquid cooling and performance similar to top server makers, and the acquisition of Juniper Networks could provide an advantage in networking infrastructure. Activist investor interest also suggests potential for value unlocking.

“And if there is one company that can compete against Super Micro in that high performance AI server space, it is this one right here. HPE has a massive installed base with enterprise customers and partnerships with Nvidia for custom designs.”

The YouTuber advises avoiding Hewlett Packard Enterprise into its earnings report, citing recent weak data center outlooks from Nvidia and Dell. Despite an 8% rise in shares over the past month and a premium valuation, HPE is expected to show an 18% drop in profits. While the Juniper Network's acquisition could be a long-term advantage, the short-term outlook is concerning.

“I do think HPE eventually builds out a strong advantage with its Juniper Network's acquisition, but would avoid it here into earnings.”

The YouTuber is loading up on HPE, citing its potential merger with Juniper to create a data center networking powerhouse and its strength in the AI server space. He expects a rebound in PC sales later this year to boost revenue estimates and believes the Juniper deal will accelerate sales, earnings, and dividend growth.

“I've been loading up on HPE lately, pointing out the likelihood of an approved merger with Juniper that would create a force in data center networking along with the company's strength in that AI server space.”

The YouTuber recommends HPE as another 'picks and shovels' play in AI, focusing on its role in building servers for data centers. He points to the massive buildout of data centers as a key catalyst and the recent approval of its $14 billion acquisition of Juniper Networks, which will boost its networking capabilities and allow for cross-selling, enhancing growth for the combined entity.

“Hewlett Packard Enterprises, ticker HPE, is back in that picks and shovels idea of the AI theme, building the servers to house those tens of thousands of Nvidia chips being sold.”

The YouTuber suggests Hewlett Packard Enterprise as a solid upside bet, benefiting from the AI server market despite a slowdown in PC demand. With similar growth forecasts to Dell (around 8%) but a cheaper valuation, HPE edges out Dell in adjusted valuation. It's a key player in the data center infrastructure boom.

“But a cheaper valuation on HPE does help it edge out Dell and adjusted valuation.”

The analyst is adding HPE to his highest conviction list due to its strong data center server business, cost-cutting measures expected to save $350 million, and the potential acquisition of Juniper Networks. He also highlights activist investor Elliot Management's $1.5 billion investment, which is expected to unlock shareholder value through cost cutting and share buybacks. The current valuation is compelling, with a potential 36% upside.

“HPE certainly has the cash with more than 13.4 billion in cash sitting on the balance sheet for that Juniper deal. Now that is a full 57% of this company's market value just in cash and gives it a huge amount of flexibility.”

The analyst is buying HPE due to its strong upside in the data center server market, despite weak PC sales which are cyclical. He notes the company's shares are extremely cheap, trading at a 16% discount to its average price-to-sales ratio over the last year, and expects growth to rebound.

“The shares are extremely cheap here. Trading for just .75 times on a price to sales basis, which is a 16% discount to the average ratio over the last year.”

The YouTuber likes HP Enterprise for its strong position in several data center themes and its attractive valuation at 1.08 times price-to-sales. It's considered a less risky option compared to SMCI in the server space.

“I like HP as well at just 1.08 times on that price s valuation and a strong player in several of these data center themes.”