Hewlett Packard Enterprise has benefited greatly from the massive demand for the hardware needed to power artificial intelligence, and Morgan Stanley doesn't think the demand will slow down soon.

Morgan Stanley analyst Erik Woodring upgraded shares of HPE to Overweight from Equal-Weight on Monday while raising his price target to $71 from $69.

The upgrade comes after HPE shares have soared 130% this year and 169% over the past 12 months. Still, the stock trades at 14.3 times earnings expected over the next 12 months, notably cheaper than the S&P 500's multiple of 20 times.

"HPE is our preferred OEM [original equipment manufacturer] to play the enterprise infrastructure cycle, offering an attractive risk/reward," Woodring wrote in a research note.

HPE stock was up 4.3% on Monday to $55.50.

HPE makes servers and networking solutions which help power AI. As AI compute demand grows, so does the need for the hardware that HPE sells. Higher demand for HPE's hardware and the components used in them, like memory, has also led to rising prices for the company's products. This has been a boon for HPE and its stock, which was trading as low as $20 a share on Feb. 23, 2026.

But there is a continuing concern on Wall Street that this great demand cycle isn't sustainable, and the AI hardware stocks that have seen big boosts in recent months don't have much more room to rise.

"Admittedly, we have been on the wrong side of the enterprise hardware trade, previously believing that record component inflation would quickly stymie a recovery in hardware spending," Woodring wrote.

He added that AI continues to drive compute and storage demand while higher memory prices are accelerating enterprise purchasing, not delaying it.

"Together, these dynamics are supporting stronger revenue growth, greater pricing power and further earnings upside across enterprise hardware," he said.

That's good news for HPE.