HPE Stock and Dell Are Downgraded. No ‘Meaningful AI Inflection Yet.’

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Barclays downgrades HPE, Dell Technologies, and NetApp as the firm takes a cautious view on the information technology stocks. (Courtesy HPE)

Key Points

Barclays analyst Tim Long downgrades HPE, Dell Technologies, and NetApp to Equal Weight from Overweight.
The analyst notes the stocks don’t appear to have a meaningful artificial intelligence inflection yet to drive significant revenue growth.
Shares of HPE, Dell, and NetApp fall in premarket trading on Wednesday following the downgrades.

Shares of Hewlett Packard Enterprise dropped in premarket trading Wednesday as Wall Street took a cautious view on several information technology stocks that have stretched valuations without a clear revenue boost from artificial intelligence.

Barclays analyst Tim Long downgraded HPE, Dell Technologies , and NetApp to Equal Weight from Overweight. The firm lowered its price target on HPE to $77 down from $83 and reduced its price target on Dell stock to $574 from $603. Long left his NetApp price target unchanged at $219.

HPE stock fell 4% to $66.06 in premarket trading on Wednesday after ending Tuesday down 2.2%. Shares have soared 186% this year as of the closing bell on Tuesday. Dell stock, meanwhile, declined 2.8% to $556.49 and NetApp stock dropped 3.4% to $231 in the premarket session.

Along with HPE, both Dell stock and NetApp have risen sharply this year. Dell stock as of the closing bell on Tuesday has surged 355% this year while NetApp shares have gained 123%.

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Barclays, however, decided to take a more cautious approach on the information technology hardware stocks with valuations skyrocketing this year as sky-high memory costs have boosted revenue.

Long said in in the research note that he entered the year “positive” on Dell, HPE, and NetApp and that investor concerns around increased memory costs were overdone. That theory has played out as all three stocks have risen sharply this year.

Whether the stock performances can continue is a separate matter as Long believes a major reason for the outperformance has been based on how the companies have offset rising memory costs.

Long noted these stocks don’t appear to have a “meaningful AI inflection yet” that could produce product adoption, enhanced business performance, and significant revenue growth.

“We believe the strong enterprise revenues are more of a function of memory costs than a move to enterprise AI at this time,” Long said.

Write to Kit Norton at kit.norton@barrons.com

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