HP Enterprise shares fall as dull forecast fuels fears of slowing demand

SHARES of Hewlett Packard Enterprise (HPE) slumped more than 10 per cent on Wednesday (May 31) as its lacklustre revenue forecast fanned worries of a slowdown in cloud spending this year.

The company was set to shed nearly US$2 billion in market value if losses hold through the session. They have lost about 3 per cent this year as of last close, failing to benefit from a broader rebound in tech stocks.

Brokerages expect economic uncertainty to weigh on demand for HPE’s server and storage systems and led six analysts to cut their price target. Their median view fell to US$17, which is about 10 per cent higher than the last closing price of US$15.52.

Faced with the possibility of a recession, businesses have dialled back cloud spending and delayed large orders, sparking a slump in the tech sector after the pandemic-led boom.

“We believe the traditional server/storage markets will be most impacted by the challenging macro backdrop,” analysts at Barclays said.

Hewlett Packard Enterprise on Tuesday projected third-quarter revenue to be between US$6.7 billion and US$7.2 billion, below estimates of US$7.24 billion and missed sales expectations for the second quarter.

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Its stock now trades at around seven times Wall Street’s average earnings estimates for the next 12 months. That is lower than the average of 17.1 for the tech sector, according to Refinitiv.

Some analysts said the AI boom could help the company, after it signalled that rising customer inquiries about the tech were expected to turn into orders over the coming months.

“As businesses scale AI models, HPE is the undisputed industry leader and has considerable growth potential,” said Shejal Ajmera, director at India-based research firm CrispIdea. REUTERS