Hewlett Packard Enterprise (HPE) shares experienced a significant decline last week, dropping by 15.2% following the announcement of mixed Q1 2025 earnings and a disappointing forecast for the year. While HPE exceeded revenue expectations with $7.85 billion, its earnings per share (EPS) fell short at $0.49, missing analysts’ estimates of $0.50. The company reported a sharp decline in gross margins, which dropped by 720 basis points to 29.2%, and a staggering negative free cash flow of $877 million. Despite some positive developments, including a 17% year-over-year revenue growth and strong performance in artificial intelligence (AI) systems, investor sentiment was dampened by the weaker-than-expected guidance for future quarters.

The company’s outlook for the second quarter of 2025 further contributed to the stock's decline. HPE projected sales between $7.2 billion and $7.6 billion, falling short of analysts’ expectations of $7.9 billion. Additionally, non-GAAP EPS for the quarter is expected to cap at $0.34, significantly below the forecasted $0.50. For the full year, HPE anticipates revenue growth of 7% to 11%, with total revenues ranging between $32.2 billion and $33.4 billion—slightly above Wall Street’s estimate of $32.5 billion. However, non-GAAP EPS for 2025 is projected to be no higher than $1.90, much lower than analysts' predictions of $2.13 per share.

Adding to HPE’s challenges are the newly imposed U.S. tariffs on imports from China, Canada, and Mexico, which have significantly impacted its profit margins and heightened uncertainty in its server division. CFO Marie Myers acknowledged that the tariffs are creating headwinds for the company but noted that HPE is working on supply chain adjustments and pricing strategies to mitigate their effects. The tariffs have also intensified competition with rivals like Dell and Super Micro Computer, further pressuring HPE’s market position. As a result, at least five brokerage firms have downgraded their price targets for HPE stock.

Despite these setbacks, HPE has shown resilience over the years with an 87% total shareholder return over the past five years due to consistent dividend payouts and stock price appreciation. However, its recent performance has lagged behind the broader U.S. tech industry, which saw a 35% return over the past year compared to HPE’s underwhelming results. The company’s recent product announcements and partnerships at the Mobile World Congress failed to offset investor concerns about its financial outlook and competitive pressures. With its stock now trading near its 52-week low of $15.76, HPE faces mounting pressure to regain investor confidence through improved execution and strategic adjustments in a challenging market environment.