MW HPE books record revenue - and shows off an attractive growth driver

By Emily Bary

The company's AI backlog reflects more business from sovereign and enterprise customers, which carry a better profit profile than the AI 'model builders'

HPE did $1.6 billion in AI revenue last quarter.

Hewlett-Packard Enterprise Co. delivered record revenue for the latest quarter, which came in better than Wall Street had modeled, but shares of the server and networking company were selling off modestly in after-hours action Wednesday.

The culprit? Likely a weaker-than-anticipated sales forecast for the current quarter. While HPE $(HPE)$ Chief Financial Officer Marie Myers was upbeat about the newly closed acquisition of Juniper Networks, she said the company has taken a conservative approach to its forecasting given the complexities of completing such a large transaction.

HPE models $9.7 billion to $10.1 billion in revenue for the fiscal fourth quarter, which at the midpoint is below the $10.1 billion FactSet consensus. HPE also models 56 cents to 60 cents in adjusted earnings per share for the period, whereas analysts were looking for 56 cents.

Shares were off about 2% in Wednesday's after-hours trading.

HPE's performance in the latest quarter was helped by demand for AI servers. The company did $1.6 billion of AI revenue in the quarter, including one sizable and competitive deal with a large AI "model builder." The company's backlog reached $3.7 billion.

"Not only are we shipping and recognizing new revenue, but we are incrementally adding new customers," Myers said.

Also notable, according to Myers, was the company's growing traction with sovereign and enterprise customers, as reflected by the backlog. Deals with these sorts of customers have a more attractive profit profile versus those with "model builders" or hyperscalers, which tend to be lumpier and more competitive.

"Enterprise and sovereigns tend to be a more consistent, steady stream of business," Myers said.

Overall, HPE generated $9.1 billion in revenue for the fiscal third quarter, up 19% from a year before and ahead of the $8.8 billion FactSet consensus view. EPS came in at 44 cents, above the 41 cents that analysts had been modeling.

HPE also noted a 29.9% adjusted gross margin for the period, which marked a 50-basis-point increase on a sequential basis, even as it was down 190 basis points from a year before.

The company has "largely" worked through some operational issues that plagued it earlier in the year, and it's seen a sequential improvement in some areas of its business, like networking. Plus, HPE has an internal program meant to drive efficiencies.

Meanwhile, its deal for Juniper was largely based on the expectation of cost synergies, according to Myers. But customers had "been waiting in anticipation" for the deal to close, and she now thinks it will "transform this company" by giving it full-stack offerings that will help its data-center business.

-Emily Bary

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

September 03, 2025 16:26 ET (20:26 GMT)

Copyright (c) 2025 Dow Jones & Company, Inc.