Prominent Hedge Fund Acquires Huge Stake in HPE: Is It a Buy Now?

Key Points

• Elliott Management, one of the world's largest activist investors, has reportedly acquired an over $1.5 billion stake in Hewlett Packard Enterprise (HPE).
• HPE's recent struggles may mean that the company needs big changes. Elliott is likely to try to exert its influence.
• What data is available surrounding Elliott's track record, and does its investment in HPE mean the stock now presents a compelling opportunity?

Hewlett Packard Enterprise NYSE: HPE now finds itself in a precarious situation. The firm will deal with something that many executives dread: activist investors. This situation comes as headlines broke that the investment company Elliott Management has accumulated a large stake in HPE.

Elliott Management engages in various strategies typical of hedge funds. However, the firm has become by far the most well-known for its penance for activist investing.

Activist investors like Elliott attempt to exert influence on companies' management teams to steer businesses in the direction they see fit.

Elliott has acquired shares in HPE worth over $1.5 billion. With an approximate valuation of $20 billion, this investment represents a whopping 7.5% stake in HPE. After this news broke, shares of HPE shot up over 5% on Apr. 15.

This indicates that markets see this as a significant positive development. However, what could this truly mean for shares of HPE in the long term? What is HPE's current state, and will this development have a positive or negative impact?

Examining HPE’s Recent Performance and Positioning Today

In 2024, things appeared to be going smoothly for the technology company. Shares provided a total return of nearly 26%, beating out the return of the S&P 500 Index by over 2%. The company exceeded adjusted earnings per share (EPS) estimates in all four quarters of 2024.

Strong performance in HPE’s server segment buoyed the stock, with revenue growth exceeding 30% in two out of four quarters. The success of HPE’s AI server business had a lot to do with this, with those products reaching record revenues of $1.5 billion in fiscal Q4.

However, 2025 has been a different story. HPE shares have provided a total return of approximately -29%. This is a far greater drop than the approximately -14% total return of the Technology Select Sector SPDR Fund NYSEARCA: XLK. The company slightly missed EPS estimates for fiscal Q1 2025. Its full-year EPS guidance was much lower than expected. Adding insult to injury, the company announced it would lay off 5% of its workforce over the next 12 to 18 months.

The company’s Server revenue growth continued to impress, rising 30%, but profitability worries were top of mind. The Server segment's operating margin fell by 350 basis points in one quarter to just 8.1%. The Server segment accounted for 55% of revenue last quarter and 41% of adjusted operating profit. Overall, Wall Street has significant concerns about HPE due to the steep decline in profitability.

Elliott Management: Past Actions Lead to Mixed Conclusions

With Elliott's emergence as a huge shareholder, the investment company has clearly noticed the recent problems plaguing HPE. Elliott and similar companies aim to push for big changes in the firms where they invest. This can include changing a firm's Chief Executive Officer, pushing for cost-cutting, and recentering a company’s focus on its core business opportunities.

For example, back in November 2021, Elliott strongly supported Dell Technologies’ NYSE: DELL spin-off of its 81% stake in VMware. Since then, Dell shares have provided a total return of 63% as of the Apr. 15 close. This compares favorably to the 23% return and 6% return of the S&P 500 and HPE, respectively.

This is especially notable as it relates to Elliott’s investment in HPE. Dell is arguably HPE’s biggest competitor in the server market. Elliott may have in-depth knowledge of this industry, considering its prior experience with Dell, which it can use to improve HPE’s business.

However, it is important to note that most of Dell's gains came after Elliott had exited its position. This creates uncertainty around how well Elliott really knows this market. Additionally, a 2021 report shows that Elliott Management significantly underperformed the S&P 500 over five years. The fund generated a five-year annualized return of 9.2% as of Mar. 31, 2021, versus 16.3% annually for the S&P 500.

What Elliot’s Investment Means for HPE Shares Now

Given Elliott’s lackluster performance cited above and missing out on significant gains in Dell, it is important not to get overexcited about HPE. This is especially true considering that Elliott's plans for HPE are currently unknown. If Elliott reveals these plans, they could warrant excitement depending on their merits.

Analyst price target updates tracked by MarketBeat in 2025 don’t paint an overly bullish picture. They indicate just 12% upside on average from HPE’s April 15 closing price. A wait-and-see approach makes sense for HPE shares, as it is important to consider future details from Elliott.