Best Value Stocks to Buy Now with the Stock Market at New Highs

Hewlett Packard Enterprise is highlighted as a Zacks Rank #1 value opportunity, supported by AI-data-center demand and projected revenue growth of 36% in FY26 and 17% in FY27, reaching about $55 billion versus roughly $34 billion in FY25. Adjusted EPS is forecast to rise 96% this year and 20% in FY27 to $4.56, while HPE has beaten EPS estimates by an average 20% over the past four quarters. Despite a roughly 150% 12-month share-price gain, HPE trades at 14.9x forward earnings—30% below the tech sector—and its average price target implies 10% further upside.

Analysis

The investment case hinges less on headline AI-server demand than on HPE converting large, customized deployments into durable gross-margin expansion and cash conversion. HPE competes in a structurally tougher profit pool than NVIDIA: hyperscalers retain purchasing leverage, white-box alternatives constrain server pricing, and component availability can make reported revenue growth working-capital intensive. The key near-term read-through is whether orders shift toward higher-margin networking, storage, and services rather than low-margin server pass-through.

At roughly 15x forward earnings after a major rerating, HPE is no longer a clean “value” expression if consensus estimates already embed an unusually steep profit ramp. Over the next 1-3 months, the relevant catalyst is order backlog, AI-system delivery timing, and gross-margin guidance at earnings—not further analyst-screen upgrades. A modest revenue beat paired with higher inventory, receivables, or weaker operating cash flow would expose the stock to multiple compression; conversely, evidence that AI mix lifts margins can justify a rerating toward networking peers.

The contrarian view is that HPE may be a better relative short than an outright AI short if AI capital spending stays strong but value accrues disproportionately to accelerators, optics, power/cooling, and high-performance networking. Arista (ANET), Vertiv (VRT), and Dell (DELL) provide cleaner comparison points: HPE must demonstrate that its systems integration and enterprise channel create economics beyond cyclical server demand. The thesis is falsified by sustained AI order growth with expanding gross margin and operating cash flow, particularly if management raises medium-term margin targets.

META and MSFT are demand indicators rather than direct beneficiaries of an HPE-specific narrative. Their capex commentary matters because any hyperscaler optimization cycle would hit lower-differentiation infrastructure vendors first, while a broad AI buildout can still support their own platform monetization and cloud revenues.

Key Decisions for Investors

• No new outright HPE long at current momentum; place a 1-3 month watch alert around earnings for AI-order growth, backlog conversion, gross-margin progression, and operating-cash-flow conversion. Initiate only if revenue growth is accompanied by margin expansion and working-capital discipline.
• For relative-value exposure, consider long ANET / short HPE over 3-6 months in equal beta-weighted sizing. ANET has greater pricing power in AI networking; target a 10-15% relative move, with stop-out if HPE raises margin outlook or wins independently verified high-margin AI networking share.
• If HPE rallies materially into earnings without upward revisions to free-cash-flow estimates, evaluate a defined-risk bearish structure such as a 3-month put spread. The setup depends on elevated implied volatility and should be avoided if options pricing already discounts a post-earnings move above historical ranges.
• Monitor META and MSFT capex guidance through the next reporting cycle as the demand falsifier. A capex slowdown or a shift toward internally designed systems would pressure HPE’s 6-18 month AI revenue assumptions before it is visible in reported sales.