Hewlett Packard Enterprise Stock Surges 5% on Strong Q2 Earnings, Tariff Relief

Hewlett Packard Enterprise (HPE) reported its second-quarter earnings after the market closed on Tuesday, exceeding expectations for both revenue and earnings. The company also indicated that the impact of tariffs on its business is expected to ease this year. Following the release of the report, the stock surged nearly 5%.

Based in Texas, HPE reported a 6% year-over-year increase in sales to $7.63 billion, surpassing the average analyst estimate of $7.46 billion. Adjusted earnings per share were $0.38, exceeding the average analyst estimate of $0.33.

CEO Antonio Neri stated in an interview that the impact of tariffs on the company's profits is expected to be more moderate. The full-year adjusted profit is expected to be negatively impacted by tariffs by $0.04 per share, down from the previous estimate of $0.07 per share.

The company also raised its full-year earnings guidance, projecting earnings per share to be between $1.78 and $1.90 (previously the lower limit was $1.70), exceeding market expectations of $1.80. HPE anticipates that revenue for the fiscal year ending in October will grow by 7% to 9% after excluding currency fluctuations (previously guided at 7% to 11%).

The wave of artificial intelligence has driven demand for high-performance servers and other hardware, benefiting companies like HPE, Dell Technologies, and Advanced Micro Devices. However, the profitability of this business segment is relatively low due to the need to configure expensive AI chips from companies like NVIDIA. HPE disclosed in its earnings report that AI system revenue for the quarter ending April 30 reached $1 billion, significantly exceeding analyst expectations of $798 million. Competitor Dell's AI server revenue for the recent quarter was $1.8 billion.

However, HPE has not fully capitalized on market opportunities like some of its peers. Elliott Investment Management, an activist investor, holds $1.5 billion in the company's stock (as of April's public disclosure) and is exerting pressure on it. Neri declined to comment on specific interactions with Elliott, stating that discussions with investors are private.