Hewlett Packard Enterprise (NYSE:HPE) is a company that sells data-related services. The company has been heavily leaning into cloud and edge computing to take advantage of the AI boom. This has paid off, but not as much as you’d expect.
HPE stock is actually down 3.9% in the past year, and the performance has been rather lackluster since 2021.
However, the stock has been on a 62%-plus recovery rally after bottoming out in April. The stock is up by over 12% and has broken above $20 after a U.S. Department of Justice settlement. This could change the narrative significantly and turn it into a proper AI stock. Here’s what you need to know.
The DOJ settlement agreement requires the divestiture of HPE’s Instant On wireless networking business within 180 days and the licensing of Juniper’s Mist AIOps source code to competitors via auction.
Antitrust concerns have been avoided with this settlement, and this clears the path for Hewlett Packard to acquire Juniper Networks (NYSE:JNPR). This latter company is also involved in networking and data-center related products, but has higher growth. Not only that, if both businesses were to combine, it would give HPE and Cisco (NASDAQ:CSCO) control over 70% of the enterprise WLAN market.
This settlement still requires judicial approval, but it is highly likely since the DOJ has publicly endorsed the settlement as a "win" and there doesn’t seem to be any big opposition.
The only drawback is HPE selling its Instant On business, but that’s not a big price to pay.
I believe a successful merger would make it one of the biggest vehicles for data center exposure, hence drawing in a higher premium from Wall Street. $25 or more is likely if the broader market cooperates.
Rate cuts are also a big positive, since HPE comes with a 2.56% dividend yield and would attract more investors seeking both yield and growth.
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