HPE delivers strong Q3, ups fiscal 2026 outlook due to AI demand

Hewlett Packard Enterprise delivered strong fiscal third quarter results as it rides AI-based servers as well as traditional data center gear. HPE projected fiscal 2026 revenue growth of 34% to 37% followed by revenue growth of 13% to 17% in fiscal 2027.

For the third quarter, HPE reported earnings of $1.06 a share on revenue of $12.2 billion, up 34% from a year ago. Non-GAAP earnings were $1.11 a share.

Wall Street was expecting HPE to report non-GAAP earnings of 94 cents a share on revenue of $11.99 billion.

HPE's quarter and outlook were stellar, but also facing a tough act to follow following Dell Technologies' results.

CEO Antonio Neri said the company saw surging demand across its portfolio. “AI is becoming a multi-year growth driver for HPE." Separately, HPE said it landed a deal to deploy HPE Juniper Networks equipment across Oracle's AI data centers.

By the numbers for the third quarter:

• Networking revenue was $2.9 billion, up nearly 75% from a year ago. In that segment, campus and branch revenue was $1.4 billion, up 31%, with data center networking revenue of $382 million, up 112.2% from a year ago. Routing revenue was $788 million, up 270%. Campus and branch covers Aruba with the remainder of the categories driven by Juniper Networks.
• Cloud and AI revenue was $9 billion, up 25.4% from a year ago.
• Server revenue was $6.8 billion, up 35.3% from a year ago.
• Storage revenue was $1.3 billion, up 10.2% from a year ago.
• Free cash flow in the quarter was $1 billion.

Speaking on the earnings call, Neri said:

• "Customer demand in the quarter accelerated across both business segments, with orders growing faster than revenues. We booked more orders than any prior quarter in our history, resulting in a record-breaking backlog for the company. Supply constraints continue to affect our ability to fulfill the increased customer demand. We are collaborating very closely with our partners to secure additional multi-year supply agreements."
• "Our backlog reflects strong customer demand from hyperscalers and neo clouds for our routers, switching and AI-driven operations software, as they continue to increase their AI cloud capex infrastructure investments."
• "AI is beginning to inflect beyond early proof-of-concept training deployments into a broader enterprise workflow transformation opportunity, customers are increasingly investing in new agentic AI applications and AI inferencing, requiring accelerated computing infrastructure, secure data storage access, and enterprise-grade cloud management."
• "We are seeing AI-related enterprise initiatives receive higher levels of investment than traditional IT projects. There is more top-level executive engagement in making those investment decisions, including company boards, which are championing AI technology to unlock further business transformation potential."

HPE CFO Marie Myers said the company can continue to improve margins and is expanding its AI-enabled process optimization effort called Catalyst. She said:

"We have expanded both our AI and operational simplification efforts across the enterprise. HPE is now deploying an internal agent AI platform built on our own private cloud AI, open source, and open weight models, leveraging intelligent routing that sends each workload request to the most cost-effective AI model."

HPE's internal projections indicate the company can reduce its token costs on its private cloud relative to public cloud by up to 60%. "Routine tasks stay on-premise while frontier models are reserved for the most complex work," said Myers.

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For the fourth quarter, HPE is projecting revenue of $13.9 billion to $14.8 billion with non-GAAP earnings of $1.20 a share to $1.30 a share. For fiscal 2026, HPE said revenue will be up 34% to 37% with networking revenue up 735 to 74%. Non-GAAP earnings for the fiscal year will be between $3.75 a share to $3.85 a share.

HPE also provided a peek at fiscal 2027 and projected revenue growth of 13% to 17% with earnings growth to be 16% to 20%.

Constellation Research analyst Holger Mueller said:

"HPE tried to ignite growth with mixed results in the past with Greenlake, Edge and more, but the AI demand solves all the growth issues. AI is now lifting the relevant adjacent infrastructure needed by AI. Storage and especially networking in the data center more than doubled. After finding growth it is all about managing growth for Antonio Neri and team."

On the deal with Oracle, Mueller said:

"This is a key win for the HPE Networking team, becoming part of the OCI AI datacenter blueprint is a key design win, one that HPE could not have pulled off without the Juniper acquisition. It is a win as well for Oracle, that can take engineering leveraged advantages in the deployment."