Bullish on the merger effect, Morgan Stanley has upgraded Hewlett Packard Enterprise Co.'s technology (HPE.US) rating to "hold".

Morgan Stanley has upgraded its rating on Hewlett Packard Enterprise Co. (HPE.US) from "Neutral" to "Overweight", while also raising its target stock price from $22 to $28. The reason for this is that enterprise hardware and storage stocks are benefiting from the growth in demand for artificial intelligence following its acquisition of Juniper Networks, Inc. The Morgan Stanley analyst team led by Eric Woodlin stated, "Our logic is straightforward - with the completion of the acquisition of Juniper Networks, Inc., we expect consensus earnings per share for 2026 to have a 18% upside potential, with earnings per share for 2027 growing to $2.70-3.00. We believe that as the market gradually realizes that nearly half of Hewlett Packard Enterprise Co.'s business comes from the networking sector (including more AI-related business, such as Juniper Networks, Inc.'s application in the xAI cluster), its valuation multiples will be reassessed from the current 8 times." The bank also reiterated its "Overweight" rating on Dell Technologies, Inc. Class C (DELL.US) and raised its target stock price from $135 to $144. "We continue to see a positive outlook for Dell Technologies, Inc. Class C in the long term - the company is a clear leader in the AI computing sector, gaining more share from key customers such as xAI and CoreWeave, regaining market share in enterprise storage, showing stability in the traditional server sector, and in the mid-term stage of the company's overall cost efficiency plan, we expect this to drive earnings growth of over 10% in the next three years (management's target is over 8%)," Woodlin stated. Morgan Stanley also initiated coverage on Pure Storage (PSTG.US) and NetApp (NTAP.US), giving them both a "Neutral" rating with target prices of $60 and $115 respectively. "Pure Storage's differentiation advantages (performance, total cost of ownership, simplicity, all driven by software) continue to build a competitive moat against peers in the enterprise storage industry, driving continuous market share gains, and we expect this trend to continue," Woodlin stated. "In addition, Pure Storage's partnerships with Meta Platforms and CoreWeave indicate their presence in the hyperscale/AI data center space." Morgan Stanley's latest Chief Information Officer survey shows an increase in enterprise hardware spending in the second quarter of 2025. However, overall enterprise hardware spending may not see significant growth in the coming quarters apart from for hyperscale enterprises focused on AI. "Looking ahead, we expect overall hardware growth to slow in the third/fourth quarters, with the most noticeable slowdown in the PC sector (benefiting from moderate pre-buying demand and Windows 11 updates in the first half of the year) and general server sectors," Woodlin said. "For enterprise storage, we are hearing mixed signals about the second half of 2025/2026. On the positive side, we continue to hear that storage demand/growth may accelerate due to data center monetization needs (growing local AI spending driving demand for faster, high-performance, primarily flash storage)." Hewlett Packard Enterprise Co. is set to announce its latest quarterly financial performance on September 3rd. The market consensus expects its adjusted earnings per share to be $0.41, with revenue of $8.8 billion.