Is the AI server market a feast or a valuation bubble? Evercore ISI downgrades Hewlett Packard Enterprise Co. (HPE.US) to "In Line," shares plunge over 10%.

Note that shares of enterprise technology infrastructure company Hewlett Packard Enterprise Co. (HPE.US) plunged nearly 11% on Monday. The stock fell $6.68 to close at $55.41 after Evercore ISI downgraded it to "In Line" from "Outperform," citing a risk-reward profile that has become balanced after a sharp run-up in the share price. The decline came after Hewlett Packard Enterprise Co. had just surged more than 12% in the prior trading session, with the stock recently trading volatile. Evercore ISI recently downgraded Hewlett Packard Enterprise Co. to "In Line" from "Outperform," saying its risk-reward has become more balanced after the stock's recent gains. The firm maintained its $65 price target and noted that Juniper integration progress, margin improvement, and potential Helios-related demand are all factors that could prompt a more positive view. On September 2, the company reported non-GAAP earnings per share of $1.11 and revenue of $12.2 billion, both above consensus expectations. Management raised its fiscal 2027 revenue growth framework to 13%17% and expects free cash flow of at least $5 billion. On the earnings call, management also noted that supply constraints in memory and wafer capacity are expected to persist, and said gross margins will decline toward historical levels as the mix of cloud and AI business rises. Within two weeks after the fiscal third-quarter earnings report, Wall Street's rating adjustments for Hewlett Packard Enterprise Co. landedly. Over the past month, at least 13 investment banks updated their price targets or ratings for this enterprise technology infrastructure company, with a rare "stretch to both ends": Bank of America Corp pushed its price target up to $88, a Street high, while Wells Fargo & Company cut its to $54, a Street low. The huge gap between $88 and $54 is a real vote on the AI server feast and gross margin concerns. The upgrade camp: the order book is the best argument The first wave of moves after earnings was almost uniformly bullish. Raymond James's Simon Leopold raised his price target to $86 from $74 and maintained a "Buy" rating, citing continued AI server momentum and improving contributions from traditional servers and storage. Bank of America Corp's Wamsi Mohan was more aggressive: on August 31, he first raised the price target to $82 from $80, then pushed it to $88 the day after earnings, saying he was bullish on AI-driven growth and margin expansion potential. Barclays' Tim Long raised his to $79 from $67, noting that the fiscal third-quarter beat came from both server demand and dual improvement in pricing and margins. Citi's Asiya Merchant raised her price target to $76 from $74, specifically emphasizing that AI inference and agentic AI workloads drove a 42% increase in Hewlett Packard Enterprise Co.'s standardized order book, and she expects improving cash flow to lead the company to increase shareholder returns starting in the fiscal fourth quarter. Deutsche Bank Aktiengesellschaft, Truist, JPMorgan, and Argus also raised or maintained Buy ratings, with price targets concentrated in the $68 to $70 range. Morgan Stanley maintained an "Overweight" rating with a slight adjustment to a $67 to $69 price targetthe firm had already upgraded the stock to "Equal Weight" in mid-August. The cautious camp: it's not that they're bearish, it's that it rose too fast Moves on the other end were equally, but mostly restrained in the form of "cut the target, don't downgrade the rating." Wells Fargo & Company's Aaron Rakers was the most decisive, slashing his price target to $54 from $67 while maintaining "In Line," making it the lowest target on the Street. Piper Sandler cut to $57, UBS Group AG to $59, and Susquehanna to $62, all maintaining "Neutral" or "Hold"; KeyBanc also reiterated Hold. And just this Monday, Evercore ISI went further, downgrading the stock to "In Line" from "Outperform," triggering a nearly 11% single-day drop in HPE to close at $55.41the latest footnote to this round of rating divergence. The logic of the cautious camp is not complicated: Hewlett Packard Enterprise Co. shares are up about 118% year to date, and the risk-reward has clearly narrowed. Management also admitted on the earnings call that supply constraints in memory and wafer capacity will persist; as the Cloud & AI business mix rises, gross margins will decline toward historical levels. In other words, AI volume growth is real, but volume growth does not necessarily equal profit growth. Based on TipRanks and MarketBeat data, of the 18 analysts covering Hewlett Packard Enterprise Co., 12 rate it "Buy," 1 "Strong Buy," 5 "Hold," and none "Sell," with a consensus rating of "Moderate Buy" and an average price target of $69.44, implying about 16% upside from the current price.