HPE Rises to Record on Strong Sales With Boost From AI Servers

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HPE Rises to Record on Strong Sales With Boost From AI Servers

stock :: 2024-12-07 :: source - bloomberg

By Brody Ford

(Bloomberg) -- Hewlett Packard Enterprise Co. reached a record high after reporting better-than-expected quarterly revenue and a jump in sales of servers to power artificial intelligence work.

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Demand for high-powered computing to run AI workloads has led to a boom for hardware makers, including HPE, Dell Technologies Inc. and Super Micro Computer Inc. HPE reported that revenue from AI systems increased 16% to $1.5 billion in the period ended Oct. 31. Server unit sales jumped 32% to $4.71 billion.

The shares rose 11% to $24 at 11:58 a.m. Friday in New York, the best intraday increase since June. The stock had gained 28% this year through Thursday’s close.

“We see the potential for stronger contribution from enterprise AI and sovereigns which bodes positively for revenue momentum and margins ahead,” wrote Asiya Merchant, an analyst at Citigroup.

Total revenue increased 15% to $8.46 billion in the fiscal fourth quarter, HPE said Thursday in a statement. Analysts, on average, estimated $8.26 billion, according to data compiled by Bloomberg. Profit, excluding some items, was 58 cents per share, ahead of the average of 56 cents expected by Wall Street.

Still, HPE’s server revenue came in just below analysts’ average estimate of $4.76 billion. “It’s a pretty competitive environment out there — both for traditional servers and AI systems — right now in the market,” Chief Financial Officer Marie Myers said on a call with analysts after the results.

Investors have become increasingly concerned about the generally lower margins of AI servers, owing to the expensive semiconductors they contain made by companies such as Nvidia Corp. Adjusted gross margins were 30.9% in the quarter, a reduction from the previous period and just below the average estimate of 31.1%.

That margin result “won’t ease concerns over AI-server profitability and could overshadow guidance-topping sales,” wrote Woo Jin Ho, an analyst at Bloomberg Intelligence. During the call with analysts, finance chief Myers said that AI server sales are weighing on margins, and the company is focusing on “streamlining our cost structure and closely managing discretionary spend.”

In January, the Texas-based hardware company announced plans to acquire Juniper Networks Inc. and orient the combined business around networking. The proposed $14 billion deal has caught the attention of US competition regulators, who have made their concerns known to the company, Bloomberg has reported.

HPE said it expects the deal to close in the “early part” of 2025. “We are working very collaboratively with the DOJ,” Chief Executive Officer Antonio Neri said in an interview, referring to the US Department of Justice. “We have received unconditional approval from pretty much all the jurisdictions around the world including the European Union, UK, Australia, South Korea — you name it.”

Revenue in Intelligent Edge, HPE’s business unit which includes networking, declined 20% to $1.12 billion in the period, in line with estimates.

In the quarter ending in January, HPE expects sales growth in the “mid teens,” compared with an average analyst estimate of 15%. Earnings, excluding some items, will be 47 cents a share to 52 cents a share. Analysts, on average, estimated 48 cents. Server revenue will be down quarter-over-quarter, Myers said on the call.