Is the AI server a feast or just a valuation bubble? Evercore ISI downgrades HPE.US to "market perform," share price plummets over 10%.

According to Zhitong Finance APP, shares of enterprise technology infrastructure company HPE (HPE.US) plummeted nearly 11% on Monday. The stock fell $6.68 to close at $55.41 after Evercore ISI downgraded its rating from "Outperform" to "In Line," citing that after a significant run-up in the share price, the risk-reward has become more balanced.

This decline came after an over 12% surge in the previous trading session, highlighting recent volatility in HPE's trading activity.

Evercore ISI recently downgraded HPE from "Outperform" to "In Line," stating that after the recent rally, the risk-reward has become more balanced. The firm maintains its $65 price target and notes that Juniper integration progress, margin improvements, and potential demand related to Helios are all potential drivers for a more positive outlook.

On September 2, the company reported non-GAAP earnings per share of $1.11 and revenues of $12.2 billion, both beating market consensus estimates. Management raised the FY2027 revenue growth framework to 13%–17% and expects free cash flow to reach at least $5 billion.

During the earnings call, management also noted that supply constraints for memory and wafer capacity are expected to persist and stated that as the share of Cloud & AI business rises, gross margins will return to historical levels.

Within two weeks of reporting Q3 results, Wall Street has seen a flurry of HPE rating and target price changes. In the past month alone, at least 13 investment banks updated their views or targets for the enterprise technology infrastructure company, showing a rare "polarization": Bank of America raised its price target to $88—a street high—while Wells Fargo slashed it to $54—a street low. The wide gap between $88 and $54 reflects genuine market sentiment regarding the AI server boom versus concerns over gross margins.

Bullish Camp: The Order Book Is the Best Proof

The first wave of post-earnings moves was overwhelmingly positive. Simon Leopold at Raymond James raised his price target from $74 to $86 while maintaining an "Outperform" rating, citing sustained AI server momentum and improvements in traditional server and storage contributions. Bank of America's Wamsi Mohan was even more aggressive, raising the target from $80 to $82 on August 31, then to $88 the day after earnings, expressing optimism over AI-driven growth and margin expansion potential. Barclays' Tim Long raised the target from $67 to $79, noting that Q3's beat was due to both server demand and improvements in pricing and margins.

Citigroup's Asiya Merchant raised the price target from $74 to $76, particularly highlighting that AI inference and agent-style AI workloads drove a 42% increase in HPE's standardized order book, and expects improved cash flow will enable HPE to boost shareholder returns starting Q4. Deutsche Bank, Truist, JPMorgan, and Argus also raised or maintained their Buy ratings, with targets concentrated in the $68–$70 range. Morgan Stanley maintains its "Overweight" rating and slightly adjusted its target to between $67–$69—having already upgraded from "Equal-weight" in mid-August.

Cautious Camp: Not Bearish, Just Too Fast

The other camp has also been active, but in a more restrained manner, mostly "cutting price targets without downgrading ratings." Aaron Rakers at Wells Fargo was the most decisive, slashing his target from $67 to $54 while maintaining an "Equal-weight" rating, becoming the lowest on the Street. Piper Sandler reduced to $57, UBS to $59, Susquehanna to $62, all maintaining "Neutral" or "Hold," and KeyBanc reiterated Hold. Just this Monday, Evercore ISI took a step further, downgrading from "Outperform" to "In Line," triggering HPE’s nearly 11% single-day drop to $55.41—marking the latest note in this round of rating divergence.

The logic of the cautious camp is straightforward: HPE’s stock has rallied about 118% year-to-date, and the risk-reward has clearly narrowed. Management candidly admitted on the earnings call that supply constraints for memory and wafers will remain; and as Cloud & AI revenue grows, gross margins will revert to historical levels. In other words, AI growth is real, but growth doesn’t necessarily mean higher profits.

According to TipRanks and MarketBeat, out of 18 analysts covering HPE, 12 rate it "Buy,” 1 as "Strong Buy," and 5 as "Hold," with none rating it "Sell." The consensus rating is "Moderate Buy," and the average price target is $69.44, about 16% above the current price.