Hewlett Packard Enterprise: A Q4 Win, but Can the Momentum Last?

Hewlett Packard Enterprise (HPE) delivered a strong fourth-quarter performance, with revenue surging 15% year-over-year to $8.5 billion, easily outpacing estimates. The company’s earnings per share (EPS) also beat expectations, with GAAP EPS jumping 102% to $0.99 and non-GAAP EPS rising 12% to $0.58. Yet beneath the surface, a mix of strategic wins and lingering concerns about margins and cash flow leave investors grappling with whether to hold, buy, or sell the stock.

The Bright Spots: Server Growth and the Juniper Play

The standout performer in HPE’s Q4 results was its server business, which grew 32% year-over-year. This surge reflects the ongoing demand for compute power from hyperscalers and enterprises investing in AI and cloud infrastructure. Servers also delivered an operating margin of 11.6%, up from 10.1% a year ago, signaling improved pricing power or operational efficiency.

The pending acquisition of Juniper Networks, expected to close in early 2025, adds another layer of optimism. Juniper’s networking and cybersecurity assets could strengthen HPE’s hybrid cloud and edge computing portfolios, potentially unlocking cross-selling opportunities. However, regulatory hurdles and integration risks remain, and the deal’s success hinges on HPE’s ability to execute in an uncertain economic environment.

The Weaknesses: Margins, Cash Flow, and Guidance

While revenue and EPS were positive, HPE’s Q4 results also revealed vulnerabilities. Operating margins fell to 5.5%, down from 7.8% in the prior year, as cost pressures and lower Intelligent Edge sales (down 20% YoY) took their toll. The Intelligent Edge segment, which includes infrastructure for manufacturing and retail, saw margins stay strong at 24.4%, but the revenue decline suggests a strategic pivot or softening demand in certain verticals.

More concerning was the free cash flow, which turned negative in Q4 at $877 million net outflow. This contrasts sharply with the $1.5 billion free cash flow in the same period last year, raising questions about liquidity and capital allocation. Even as HPE maintained its dividend of $0.13 per share, the cash flow squeeze could limit flexibility if the economy slows.

Analysts at StockStory noted another red flag: HPE’s full-year 2025 EPS guidance of $1.80 (midpoint) missed consensus expectations by 15.5%. The cautious outlook, combined with a Q1 revenue growth forecast of only “mid-teens percent,” suggests management is tempering enthusiasm despite the strong Q4 finish.

The Stock’s Dilemma: Growth vs. Value

HPE’s shares have been under pressure, falling 17.5% over the past six months to close at $16.55 post-earnings. The stock trades below the consensus one-year price target of $18.98, but investors are skeptical of long-term growth prospects.

The disconnect between HPE’s strong revenue growth and its lagging stock price reflects broader market skepticism about the tech sector. While server and cloud trends are favorable, HPE’s margin erosion and cash flow challenges suggest it may not yet be firing on all cylinders. The Juniper acquisition, while promising, is unproven, and the company’s free cash flow struggles could deter investors looking for stability.

Conclusion: Hold for Now, but Monitor Cash Flow and Juniper’s Impact

HPE’s Q4 results are a mixed bag. The company is capitalizing on secular trends in enterprise computing and AI, but its margins and cash flow remain problematic. The Juniper deal could be a catalyst if executed well, but investors should demand clearer signs of margin stabilization and free cash flow recovery before turning bullish.

Key data points to watch:
- 2025 Free Cash Flow: If it improves from Q4’s negative $877 million, it would signal better capital management.
- Margin Recovery: A return to mid-single-digit operating margins (closer to 2023’s 7.8%) would alleviate concerns about profitability.
- Juniper Synergies: Early post-merger results could determine whether the acquisition adds value or becomes a drag.

For now, Hold is the safest bet. HPE has momentum in high-growth segments but needs to prove it can convert top-line wins into sustainable profitability. The path to a “Buy” rating hinges on execution—a tall order in an industry where missteps are punished swiftly.

In the end, HPE’s story isn’t over. But investors must decide whether the company’s vision for the hybrid cloud and edge computing future can outweigh its present-day struggles.