Key Takeaways:
Hewlett Packard Enterprise Co. (NYSE:HPE) shares surged nearly 6 percent on Thursday after Citigroup raised its price target by 44 percent, citing powerful demand for AI-related infrastructure that was reinforced by stellar results from competitor Cisco Systems Inc. (NASDAQ:CSCO).
"Networking remains the clearest near-term driver into the coming quarter, as we await to hear how the expanded portfolio is performing," Citigroup analyst Asiya Merchant said in a research note, adding that data-center buildouts "are increasing the need for high-speed, programmable, low-latency connectivity."
The bank lifted its price target on HPE stock to $39 from a previous $27 and increased its fiscal 2026 earnings estimate to $2.45 a share from $2.40. The move sent shares up 5.7% to $33.90 in morning trading. The rally builds on an 82% gain over the last 12 months, with the stock also getting a boost from news that activist investors, including Irenic Capital, have taken stakes in the company.
The bullish call from Citi comes a day after networking giant Cisco reported it has booked $5.3 billion in AI infrastructure orders year-to-date, blowing past its previous $5 billion target for the entire fiscal year. The report is seen as a strong positive signal for the entire networking and AI server market, benefiting peers like HPE and Dell Technologies Inc. (NYSE:DELL), whose price target was also raised by Citi to $290.
Adding to the momentum, a Semafor report revealed that multiple new activist investors have joined Elliott Management in pushing for strategic changes at HPE. Irenic Capital is reportedly among the new funds with positions in the enterprise technology company. The involvement of several activists often signals significant institutional support for operational or strategic shifts, which the market has received enthusiastically, pushing the stock to a fresh 52-week high.
After a 34% year-to-date run, HPE's valuation is a key question for investors. The company currently trades at a price-to-sales ratio of 1.10x, a significant discount to the tech industry average of 2.67x. A discounted cash flow model from Simply Wall St estimates an intrinsic value of $35.52 per share, suggesting the stock is still undervalued by about 16% from its recent price of $29.70. This contrasts a more bearish view that sees fair value closer to $21, highlighting risks from tariffs and potential margin pressure.
The upgrade from Citi suggests the market is siding with the bullish narrative, focusing on AI systems growth and the integration of Juniper Networks. Investors will now watch HPE's next earnings report for confirmation that the broad strength seen at Cisco is translating into its own order book.
This article is for informational purposes only and does not constitute investment advice.
