HPE stock forms rare cup-and-handle pattern as Dell earnings set up key catalyst

HP Enterprise stock jumped by 4% in extended hours after Dell, its top competitor, announced strong financial results, which drove its shares up by nearly 10%. HPE jumped to $53.45, up modestly from Tuesday’s close of $50 as focus now shifts to its earnings.

HP Enterprise boosted by Dell earnings

HPE stock jumped after Dell, its top rival, released strong financial results, shedding more color on its business. In a statement, Dell said that its revenue jumped by 58% in the second quarter to $47 billion, with annual revenue expected to jump by 69% to $192 billion. The Chief Operating Officer (COO) said:

“That’s clearest in our AI server business, where we booked a record $60.9 billion in orders, recognized a record $16.4 billion in revenue and exited the quarter with a record $95 billion backlog. We’re seeing broader revenue growth as well, with traditional servers and networking up 122% and storage up 26%.”

These earnings are important because Dell and HP Enterprise provide similar products and services. HPE may also release strong results, as we saw with other top competitors like Lenovo Group and Super Micro Computer.

This is what happened in the last earnings report, which showed that its revenue jumped by 40% to $10.7 billion, with its gross margins rising by 750 basis points to 36.9%. Its growth was driven by its networking revenue, which jumped by 148% to $2.7 billion and its cloud and AI, which jumped by 23% during the quarter. 

Analysts expect the upcoming numbers to show that HP Enterprise’s revenue jumped by 30% in the last quarter to $12 billion. As we have seen with other companies in the AI industry, chances are that its revenue and earnings per share (EPS) will be better than expected. 

Traders will be looking at its revenue backlog and its margins, which are expected to continue growing. In Dell’s case, its gross margin rose to 20.9% from 18.3% in the same period last year as prices continued rising. 

These numbers come at a time when the company’s valuation seems like a bargain. It has a forward price-to-earnings ratio of 15, much lower than the technology sector median of 22. It is also lower than other technology companies like Nvidia and AMD.

HPE stock has formed a cup-and-handle pattern

HPE stock chart | Source: TradingView

The daily chart shows that the HPE share price has pulled back in the past few weeks, moving from a high of $63.75 in August to $50.87 on Tuesday. A closer look shows that the stock has formed a cup-and-handle pattern and is now in the handle section. This pattern normally leads to a strong rebound. 

In this case, the cup has a depth of 37%. Measuring the same distance from the cup’s upper side means that the stock may rebound to $87.56 in the long term. This view will be confirmed if it rises above the upper side of the cup at $63.75.