icon
icon
icon
icon
Upgrade
icon

Hewlett Packard Enterprise (HPE) Earnings Preview: Enterprise and AI Set the Stage

AInvestWednesday, Sep 4, 2024 3:19 pm ET
2min read

Hewlett Packard Enterprise (HPE) is set to announce its third-quarter (July) earnings results today after the market closes, with an earnings call scheduled at 5 p.m. ET. The company's earnings report will provide important insights into its performance, particularly as HPE has managed to deliver six consecutive EPS beats, demonstrating consistency despite facing challenges in certain quarters.

Current estimates suggest non-GAAP earnings per share (EPS) of $0.47, reflecting a slight 4% decline year-over-year, while revenue is anticipated to grow by 10% to $7.67 billion.

Investors are looking for clues about HPE's ability to sustain its growth trajectory, especially with its ongoing expansion into artificial intelligence (AI) and its pending acquisition of Juniper Networks (JNPR).

Key Drivers and Expectations: Strong AI Tailwinds and Enterprise Demand

In the second quarter (April), HPE surprised investors by exceeding revenue expectations after missing in the prior two quarters. The revenue beat was primarily driven by improving enterprise demand for traditional servers, coupled with a sharp increase in AI server sales.

The company has reported an uptick in enterprise customer interest in AI, with sales teams witnessing heightened engagement levels. This interest has translated into tangible growth: enterprise orders now account for over 15% of HPE's cumulative AI system orders, and the number of enterprise AI customers has nearly tripled year-over-year.

One of the most significant highlights from the last quarter was HPE's ability to more than double its AI systems revenue sequentially, reaching over $900 million. This growth was largely facilitated by better GPU availability, which had previously been a bottleneck in the first quarter.

With an improved lead time for delivering NVIDIA H100 GPUs—now ranging between six to 12 weeks—HPE expects a substantial lift in revenue in the second half of the fiscal year. Investors are likely to focus on these AI-related trends in the upcoming earnings report, as the sector represents a significant growth avenue for HPE.

Guidance and Market Sentiment: Mixed Signals but Room for Optimism

For the upcoming quarter, HPE has provided a guidance range for adjusted EPS of $0.43 to $0.48 and revenue of $7.40 billion to $7.80 billion. The midpoint of this guidance indicates a slightly conservative stance on earnings compared to analyst expectations, but a more optimistic outlook on revenue growth.

For the full fiscal year, the company expects adjusted EPS to be between $1.85 and $1.95, with revenue growth forecasted to be between 1% and 3% in constant currency terms.

The mixed guidance from HPE—solid revenue projections but cautious EPS guidance—suggests the company is managing its growth expectations carefully amid a dynamic market environment. The ongoing acquisition of Juniper Networks, expected to close by late 2024 or early 2025, also adds another layer of complexity and potential upside.

If successfully integrated, this acquisition could bolster HPE's networking capabilities and provide additional synergies to support its AI and cloud initiatives.

Challenges and Market Reaction: Balancing Consistency with Strategic Growth

Despite HPE's recent strong performance in AI systems, there are still challenges to consider. The company's revenue growth has been somewhat erratic, with misses in each of the two quarters preceding Q2. This inconsistency has caused some investor skepticism, as evidenced by the stock's pullback below $20 after a post-Q2 rally.

The market seems to be adopting a wait-and-see approach, gauging whether HPE can sustain its growth in both traditional and AI-driven segments.

The performance of HPE's stock following today's earnings report will largely depend on its ability to deliver on expectations, particularly around its AI growth narrative. Investors will be keenly watching for any updates on AI system orders, customer engagement levels, and supply chain improvements related to GPU availability.

Additionally, any insights into the integration process for Juniper Networks could provide a clearer picture of HPE's future growth prospects.

Conclusion: A Crucial Quarter Ahead for HPE's Growth Strategy

Hewlett Packard Enterprise is at a pivotal juncture as it prepares to release its third-quarter earnings. With a track record of delivering consistent EPS beats and an expanding footprint in AI and cloud infrastructure, HPE has positioned itself as a key player in the evolving enterprise technology landscape.

However, the company faces the challenge of maintaining this momentum amid fluctuating revenue growth and ongoing strategic shifts, including the Juniper Networks acquisition.

The upcoming earnings report will serve as a critical indicator of whether HPE can continue to capitalize on its strengths and navigate its challenges effectively. For investors, the key takeaway will be whether HPE's growth in AI and its strategic initiatives are enough to offset any near-term headwinds, paving the way for sustained long-term value creation.

Disclaimer: the above is a summary showing certain market information. AInvest is not responsible for any data errors, omissions or other information that may be displayed incorrectly as the data is derived from a third party source. Communications displaying market prices, data and other information available in this post are meant for informational purposes only and are not intended as an offer or solicitation for the purchase or sale of any security. Please do your own research when investing. All investments involve risk and the past performance of a security, or financial product does not guarantee future results or returns. Keep in mind that while diversification may help spread risk, it does not assure a profit, or protect against loss in a down market.