Prior to the earnings reports of hardware and networking stocks, JPMorgan expressed its highest confidence in Dell Technologies Inc. and Hewlett Packard Enterprise. The firm increased the price targets for Dell, Hewlett Packard Enterprise, and HP Inc. Analysts led by Samik Chatterjee stated: "Ahead of the earnings releases, we are most optimistic about Dell and Hewlett Packard Enterprise. Upward revisions in earnings expectations are likely to strengthen the medium-term earnings growth outlook and help restore valuation multiples to levels more consistent with that outlook. Earlier this year, multiples had hit lows due to market concerns over memory-related headwinds."
The analysts noted that the easing of memory-related concerns in the IT hardware sector has driven a strong rally in the stocks. They believe the sharp stock price increases stem from a significant shift in investor expectations regarding near-term earnings: previously, there were concerns about downside risks to sell-side consensus estimates, but now expectations have turned to upside potential due to earlier-than-anticipated demand. At the same time, long-term valuation multiples based on forward earnings expectations have remained largely stable, except for Dell.
For Dell, JPMorgan maintained its "Overweight" rating and raised the price target from $205 to $280. The analysts anticipate Dell will once again raise its earnings guidance for fiscal year 2027 (ending in January), having previously increased it to 25% growth. However, this revision is expected to be more moderate due to the carryover effect of a better-than-expected Q1 FY2027 performance, though supply visibility remains a constraint, particularly for AI servers needing to meet higher demand expectations. Chatterjee and his team said: "We forecast FY2027 earnings growth will be revised up to 27%, from the prior guidance of 25%, benefiting from both the Q1 beat and the Q2 outlook exceeding expectations." Dell is scheduled to report Q1 FY2027 results on May 28.
For Hewlett Packard Enterprise, the firm maintained its "Overweight" rating and raised the price target from $27 to $37. Chatterjee's team stated: "We expect positive factors in network demand to support further upward revisions in earnings expectations, driven more this time by improvements in fundamental profit expectations rather than one-off items. We see strong performance in campus business and Cisco's cloud routing business, indicating active campus network refresh activity by enterprise customers, alongside robust spending by hyperscale data centers on wide area network deployments."
Regarding supply challenges facing the industry, the analysts noted that Hewlett Packard Enterprise may face relatively milder headwinds, as its product portfolio strategy combines custom and commercial chips, allowing it to adjust revenue and earnings guidance upward in response to higher demand. With memory headwinds easing for IT hardware companies, including Hewlett Packard Enterprise, and strong demand drivers improving visibility toward achieving the FY2028 target of $3 EPS, the analysts believe investors are willing to assign valuation multiples more appropriate for the implied mid-to-high teens percentage (approximately 15% to nearly 20%) earnings compound annual growth rate. Hewlett Packard Enterprise is scheduled to report Q2 FY2026 results on June 1.
For HP Inc, JPMorgan maintained its "Neutral" rating and increased the price target from $19 to $22. The analysts said: "For HP, we expect strong PC demand drivers to drive near-term earnings upside, but revenue outperformance can only partially offset margin pressure from memory-related headwinds." Chatterjee and his team expect the company to limit the magnitude of its guidance increase within the full-year outlook range, considering concerns about demand price elasticity after price hikes. Additionally, the analysts noted that while they believe easing memory headwind concerns and a reaffirmed full-year guidance will help improve investor sentiment, they anticipate a more modest expansion in valuation multiples for this company compared to other IT hardware firms. HP Inc is scheduled to report Q2 FY2026 results on May 27.
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