Hewlett Packard Enterprise (HPE) faced a significant market hit as its shares tumbled by 13% on Friday. The AI-server manufacturer cited U.S. tariffs as a key factor impacting its annual profit forecast, adding to the growing economic uncertainty in the tech sector.
Hewlett Packard Enterprise Stock Drops 13% as U.S. Tariffs Bite
Tariffs Create Market Uncertainty
The U.S. government has imposed fresh tariffs on imports from Canada, Mexico, and China, leading to increased production costs for companies like HPE. The recent 10% duty on Chinese goods, added on top of a prior 10% tariff, has further strained the company’s financial outlook. The company’s CFO, Marie Myers, acknowledged that the new tariff announcements had created substantial uncertainty, particularly for HPE’s server business.
Stock Plunge and Market Impact
As a result of these tariff concerns, HPE’s market value is set to decline by more than $3 billion if losses persist. Additionally, at least five brokerage firms have slashed their price targets on HPE stock following the company’s financial guidance update.
Competition and Job Cuts
Amidst stiff competition from industry rivals Dell and Super Micro Computer, HPE is now forced to consider job cuts as part of its cost-reduction measures. While Dell’s stock also dipped by 2%, Super Micro Computer saw a 3% increase, reflecting differing levels of exposure to import tariffs.
Supply Chain and AI-Server Costs
HPE, along with other AI-server manufacturers, is grappling with the rising cost of production, as the demand for high-performance chips continues to grow. Unlike Super Micro, which assembles its products in San Jose while sourcing components from Asia, both HPE and Dell rely heavily on outsourcing to manufacturing partners in Asia and Mexico. This heavy dependence on foreign manufacturing makes them more vulnerable to U.S. tariffs.
Analysts Predict Short-Term Struggles
Despite the current setbacks, Morningstar analyst Eric Compton believes the impact of these tariffs may be temporary. He predicts a challenging second and third quarter for HPE but expects a rebound in the fourth quarter as the company adjusts its strategies.
Stock Valuation
Currently, HPE is trading at 8.19 times its projected earnings for the next 12 months, making it slightly cheaper than its competitors Dell (9.74x) and Super Micro Computer (10.71x). This valuation suggests that while HPE faces short-term turbulence, investors might see potential value in the stock over the long run.
