Hewlett Packard Enterprise (NYSE: HPE) shares gained on Monday after Morgan Stanley upgraded the stock, with the investment bank pointing to growing demand for enterprise infrastructure as companies expand their artificial intelligence capabilities.
HPE stock advanced 2.73% to close at $54.67 on August 10, after reaching an intraday high of $56.85. The move followed Morgan Stanley’s decision to raise its rating on the company from Equal-Weight to Overweight and increase its price target from $69 to $71.
At the new target, Morgan Stanley sees almost 30% potential upside from HPE’s latest closing price. The bullish call comes after a strong earnings performance and a sharp acceleration in networking revenue, strengthening the case that AI-related infrastructure spending could remain an important growth driver for the company.
Morgan Stanley analyst Erik Woodring identified HPE as the firm’s preferred original equipment manufacturer for participating in the enterprise infrastructure cycle. The view reflects expectations that businesses will continue investing in data-center capacity, networking equipment and systems needed to support increasingly demanding AI workloads.
Hewlett Packard Enterprise Company, HPE
The $71 price target also stands above the current analyst consensus target of $68.82. At Monday’s closing price, that consensus implies approximately 25.9% upside, while Morgan Stanley’s forecast points to a potential 29.9% gain.
Valuation is another factor behind the bullish argument. Based on Wall Street’s forecast of $4.02 in earnings per share for HPE’s next fiscal year, the company trades at roughly 13.6 times forward earnings. That represents a substantial discount to the S&P 500’s forward multiple of around 20 times.
However, investors should also consider that HPE shares have already gained roughly 130% this year. The latest rally therefore comes after a significant repricing of the stock rather than from a depressed starting point.
HPE’s latest financial results provide much of the foundation for Morgan Stanley’s optimism. Revenue in the company’s fiscal second quarter reached $10.68 billion, representing a 40% increase from $7.63 billion a year earlier.
Profitability also improved considerably. Non-GAAP diluted earnings per share climbed 108% year over year to $0.79, while GAAP gross margin increased to 36.5%, an improvement of 810 basis points.
Networking was particularly important to the quarter’s performance. Revenue from the segment jumped 148.2% to $2.7 billion, helped by HPE’s integration of its Juniper Networks portfolio. Data-center networking revenue was even stronger, rising 233.3% to $320 million.
The results highlight how HPE is increasingly positioned to benefit from companies upgrading their technology infrastructure to accommodate AI applications. As organizations deploy more AI services, they require faster networking, greater computing capacity and increasingly sophisticated data-center architectures.
HPE Chief Executive Antonio Neri has also pointed to continued customer investment in infrastructure modernization and AI scaling, reinforcing the company’s argument that the current spending cycle could extend beyond the latest quarter.
HPE has responded to the stronger operating performance by raising its fiscal 2026 adjusted earnings outlook to between $3.35 and $3.45 per share. The company also expects to generate at least $3.5 billion in free cash flow during the year.
Free cash flow already showed significant improvement during the second quarter, reaching $915 million. That represented a substantial increase compared with the same period a year earlier.
The company’s next major test will be its fiscal third-quarter performance and whether it can deliver against its latest guidance. HPE currently expects revenue of between $11.5 billion and $12.1 billion, while adjusted earnings per share are projected at $0.88 to $0.93.
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