A Barclays downgrade over the pace of corporate AI hardware adoption sent Hewlett Packard Enterprise shares down 20.2% in a week. The bank says businesses allocate roughly 5% of IT budgets to AI projects. The next test is fiscal fourth-quarter earnings on Dec. 3, 2026.
Hewlett Packard Enterprise stock closed at $58.63 on Thursday, October 15, down 20.2% from Friday's close. Over the same period, the S&P 500 slipped 0.9%, and the Nasdaq-100 fell 3.1%.
Barclays questions enterprise AI timing
Analysts at Barclays downgraded the stock on Wednesday to the equivalent of a hold rating. They cited concerns that corporate adoption of artificial intelligence hardware is taking longer than expected.
The firm noted that businesses allocate roughly 5% of their IT budgets to AI projects. That suggests recent server revenue gains reflect higher memory component costs rather than a surge in enterprise AI deployments. The downgrade also hit Dell Technologies, which plunged 6.7% over the week.
Server revenue had expanded 35% in HPE's last reported fiscal third quarter, which ended July 31, 2026. However, the downgrade underscores that much of that momentum stemmed from hardware price increases rather than from increased unit shipments to corporate customers.
Valuation and the December earnings test
The next major test comes on Dec. 3, 2026, when management is scheduled to report fiscal fourth-quarter earnings. Investors will watch gross margins closely after adjusted gross margin reached 40% in the prior quarter.
HPE trades at a trailing P/E ratio of 29.2, above the peer average of 16.1. Dell sits at 27.1, HP Inc. at 11.6 and Super Micro Computer at 9.6.
The author of the Motley Fool piece argues the sell-off looks like an overreaction. He points to HPE's 17.9 times free cash flow on Oct. 16, against 33.8x for Dell.
Source: Motley Fool
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