Hewlett Packard Enterprise Reports Strong AI Systems Revenue

Image: Hewlett Packard Enterprise is breaking out nicely.

By Brian Nelson, CFA

On June 4, Hewlett Packard Enterprise (HPE) reported better than expected fiscal second quarter results that showed a beat on both the top and bottom lines. The company’s revenue advanced 3% from the prior quarter last year (up 4% in constant currency), while its annualized revenue run rate came in at $1.5 billion, which was up 37% from the same period last year (up 39% in constant currency). Hewlett Packard Enterprise’s server revenue advanced 18% on a year-over-year basis in both actual dollars and in constant currency.

Management spoke positively about the results and outlook:

HPE delivered very solid results in Q2, exceeding revenue and non-GAAP EPS guidance. AI systems revenue more than doubled from the prior quarter, driven by our strong order book and better conversion from our supply chain. Our deep expertise in designing, manufacturing, and running AI systems at scale fueled growth of cumulative AI systems orders to $4.6 billion, with enterprise AI orders representing more than 15%. HPE’s AI advantage, increased HPE GreenLake adoption, and leading infrastructure portfolio, as well as an improved supply chain environment, set us up very well to deliver a strong second half.

Stronger AI systems order conversion, prudent cost discipline, and higher-than-expected free cash flow drove a very solid performance in Q2. Because of our robust AI systems order momentum and disciplined execution across our entire portfolio, we are raising our revenue and non-GAAP EPS guidance for the full year. We are driving profitable growth as we convert customer demand to revenue, particularly for HPE’s AI systems. The long-term trends across hybrid cloud and networking also position us well for the future. 

We liked the AI-related news from Hewlett Packard Enterprise, and shares were up nicely following the report. Hewlett Packard Enterprise’s cash flow performance was also solid, with free cash flow increasing $322 million, to $610 million, for the three months ended April 30, 2024. HPE’s revenue growth for fiscal 2024 is now expected to expand 1%-3% in constant currency (was 0%-2%) and non-GAAP diluted earnings per share in the range of $1.85-$1.95 per share, the midpoint above the $1.88 per share the Street had been expecting at the time.

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