Is Hewlett Packard Enterprise (NYSE:HPE) A Good Hardware Stock To Buy According To Goldman Sachs?

We recently compiled the list of the 15 Best Hardware Stocks According To Goldman Sachs using the latest sentiment data. In this article, we are going to take a look at where Hewlett Packard Enterprise Company (NYSE:HPE) stands against the other hardware stocks.

The soaring popularity of artificial intelligence for consumer and business applications has injected fresh life into the computing industry. If we're to rewind the hands of time and go back to 2022, the stock market environment was considerably different from what it is now. All major technology stocks, including those that are responsible for making chips that power AI workloads were down by double digit percentages in the wake of breakneck inflation and rising interest rates.

Fast forward to 2024 and the rise in valuations seems to have no end in sight. One bank that's quite optimistic about artificial intelligence is Goldman. Goldman's analyst teams are among the best in the world, and they spend countless hours analyzing stocks and industries for the right set of picks that could disrupt the industry.

On this front, Goldman came out with a note recently that outlined a new beginning for the computer hardware industry. According to the bank, the introduction of AI has necessitated a global shift to new hardware that can support the technology. In its note, the bank's analysts shared:

During the pandemic, the tech hardware industry peaked as the majority of work-from-home employees purchased equipment. The space currently has fully unwind this cycle and we notice stocks like HPQ trading at 9x their 2025 earnings estimates.

Most PCs purchased during the pandemic are expected to be replaced soon. We expect discernable new features of AI, enhanced security, and stronger computational power in upcoming PC and mobile device models, incentivizing the US consumer to spend more on newer equipment than historically, creating an unusually stronger cycle.

Goldman also created a basket of stocks where the highest weighted stock has an 8% weight and there are 20 stocks in the basket. According to Goldman analyst Faris Mourad:

The basket is composed of technology hardware stocks that may benefit from PC and mobile device renovations that could include AI features. The basket can trade up to $250m in one day with no name exceeding 10% of ADV.

Considering this optimism, we decided to take a look at the top Goldman's top 15 hardware stock picks.

Our Methodology

To make our list of the top Goldman Sachs hardware stocks, we used the top holdings of the bank's PC & Mobile Device AI Upgrades basket (GSXUPCAI).

For these hardware stocks, we also mentioned hedge fund investors. The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).

4. Hewlett Packard Enterprise Company (NYSE:HPE)

Number of Hedge Fund Shareholders In Q1 2024: 49

Hewlett Packard Enterprise Company (NYSE:HPE) is one of two wings of Silicon Valley's oldest technology company, HP. It caters to the enterprise computing industry and sells products such as switches, servers, and gateways. After Hewlett Packard Enterprise Company (NYSE:HPE)'s latest quarter saw it grow AI shipments by 125% to $900 million, Evercore ISI maintained a $22 share price target and an In Line rating for the stock. Following the earnings, BofA increased Hewlett Packard Enterprise Company (NYSE:HPE)'s share price target to $22 from $19 and kept a Neutral rating. Wells Fargo also maintained an Equal Weight rating, and it increased the share price target to $22 from $19 as well.

Like other stable hardware stocks, Hewlett Packard Enterprise Company (NYSE:HPE)'s forward price to earnings ratio of 11.10 implies that investors do not see it as a growth stock. However, management is quite bullish on AI, and shared during the latest earnings call:

HP is winning in AI because we deliver an end-to-end portfolio designed for the full spectrum of enterprise and used cases spanning large scale model development, training, and inferencing. Customers are attracted to HPE’s market leading super computing capabilities, differentiated Interconnect IP, AI specific software, and services expertise. Since the start of the second quarter, we have won multiple large contracts, totaling more than $800 million from large cloud providers and enterprise customers that will develop, train, and run AI models. Most of these contracts exceed $100 million each. We expect this pipeline to continue to grow and anticipate these deals will generate significant revenue in later quarters. For example, in Q2, (ph) and AI focused deal with Crusoe Energy, a cloud provider pioneered in infrastructure that taps into stranded energy like wasted methane or tractor renewable energy to power compute resources.

Overall, HPE ranks 4th among the 15 best hardware stocks to buy according to famed investment bank. You can visit the 15 Best Hardware Stocks According To Goldman to see the other hardware stocks. While we acknowledge the potential of HPE as an AI investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than HPE but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

 

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Disclosure: None. The article was originally published at Insider Monkey.