Hardware Stocks Surge Far Ahead of S&P 500! Goldman Sachs' Top Picks Are These Three Companies

Artificial intelligence (AI) infrastructure investment continues to intensify. Goldman Sachs has recently named Dell Technologies, Hewlett Packard Enterprise (HPE), and NetApp as the top three preferred U.S. hardware stocks. The firm believes that rapid growth in AI server demand, coupled with enterprises accelerating data center equipment upgrades, will continue to drive revenue and profit gains for hardware providers.

U.S. hardware stocks have significantly outperformed the broader market since the second quarter of this year. According to Goldman Sachs’ analysis, between April 1 and August 7, the S&P 500 index rose 18%, while the IT hardware sector surged 136%. During the same period, Dell Technologies, HPE, and NetApp saw stock gains of 168%, 122%, and 86%, respectively.

Goldman Sachs maintains a 'Buy' rating on all three companies but has adjusted their 12-month price targets based on updated operational outlooks. Among them, Dell Technologies remains the top pick.

Dell Technologies: AI and Traditional Server Demand Growing Together

Goldman Sachs maintains a 'Buy' rating on Dell Technologies (DELL-US) and raises its 12-month price target from $500 to $510. Strong demand for AI servers, along with improved outlooks for traditional server business, are the primary reasons behind Goldman's upward revision of financial estimates.

Goldman Sachs forecasts that Dell will achieve $44.8 billion in revenue during the second quarter of fiscal year 2027, with its Infrastructure Solutions Group (ISG) revenue expected to grow 75% year-over-year, and the Client Solutions Group (CSG) also growing 20%. Adjusted earnings per share (EPS) are estimated at $4.96, exceeding the upper end of the company's guidance range.

Based on upward revisions to traditional server revenue expectations, Goldman Sachs has raised its average EPS forecasts for Dell across fiscal years 2027 to 2029 by 4%. Dell recently launched the PowerEdge XE8812 server powered by NVIDIA’s (NVDA-US) Vera Rubin architecture, further strengthening its AI hardware product portfolio.

However, Goldman Sachs warns that weakening PC demand, slowing enterprise IT spending, pricing competition from peers, rising component costs, and white-label server vendors capturing market share could pressure Dell’s growth and margins.

Hewlett Packard Enterprise: Networking Equipment Becomes a New Growth Engine

Goldman Sachs maintains a 'Buy' rating on Hewlett Packard Enterprise (HPE-US) but lowers its 12-month price target from $79 to $75.

Goldman Sachs expects HPE’s third-quarter revenue for fiscal year 2026 to reach $12 billion, above market consensus. Within this, cloud and AI-related revenue is expected to grow 22% year-over-year, while networking revenue could surge by 77%. Adjusted EPS is forecast at $0.94, slightly above the upper end of the company’s guidance range.

As hyperscale cloud providers expand AI infrastructure and general-purpose computing demand rebounds rapidly, Goldman Sachs has raised its average EPS forecasts for HPE across fiscal years 2026 to 2028 by 2%, primarily reflecting improved revenue outlooks for networking equipment.

HPE recently secured adoption by cloud service provider Vultr for large-scale AI data center deployments. It has also integrated Juniper Networks’ networking products into its AI data center solutions and expanded collaborations with eight companies in the quantum computing field.

Potential risks include declining enterprise IT spending, competition from white-label equipment, market share loss during Juniper integration, and rising component costs.

NetApp: Rising Average Selling Prices Support Storage Growth

Goldman Sachs maintains a 'Buy' rating on storage provider NetApp (NTAP-US) and raises its 12-month price target from $200 to $210, driven by optimism around enterprise infrastructure spending and rising average selling prices (ASPs) for storage equipment.

Goldman Sachs forecasts NetApp’s first-quarter revenue for fiscal year 2027 at $1.81 billion and EPS at $2.12, slightly above the midpoint of the company’s guidance. Based on higher storage ASPs, Goldman has raised its average revenue and EPS forecasts for fiscal years 2027 to 2029 by 5% and 4%, respectively.

NetApp’s last quarter results exceeded market expectations on both revenue and profit, prompting institutions like Argus and Barclays to raise their price targets. The company recently announced the acquisition of AI data infrastructure firm DataPelago to enhance its AI data management capabilities.

Goldman Sachs notes that NetApp still faces risks such as supply shortages, long-term decline in enterprise on-premises storage demand, intensifying industry competition, and global macroeconomic weakness.