HPE delivers strong Q2 outlook amid AI infrastructure demand

HPE delivered a mixed first quarter, but said revenue in the second quarter will be better than expected.

The company reported first quarter earnings of 31 cents a share on revenue of $9.3 billion, up 18% from a year ago. Non-GAAP earnings in the first quarter were 65 cents a share. Wall Street was expecting HPE to report first quarter non-GAAP earnings of 59 cents a share on revenue of $9.35 billion.

HPE CEO Antonio Neri said the company was seeing strong demand and networking upside. "Our Q1 results reflect our newly combined networking innovation, and effective operational discipline in a dynamic commodity supply environment. Demand for our products and solutions was strong, with orders increasing double digits year over year across all segments," said Neri.

By the numbers:

• Networking revenue in the first quarter was @.7 billion, powered by Juniper networks. Campus and branch revenue was $1.2 billion with data center networking revenue of $444 million. Router revenue was $780 million.
• Cloud and AI revenue was $6.3 billion, down 2.7% from a year ago.
• Server revenue was $4.2 billion, down 2.7% from a year ago. Storage revenue was $1.1 billion, up less than 1% from a year ago.

HPE's results landed after a strong quarter from Dell Technologies, which was propelled by AI infrastructure as well as traditional servers. See: Dell delivers blowout Q4, outlook on AI infrastructure boom

As for the outlook, HPE said AI infrastructure demand would boost the second quarter. HPE projected second quarter revenue of $9.6 billion to $10 billion, above the consensus estimate of $9.56 billion. Non-GAAP earnings guidance was 51 cents a share to 55 cents a share in line with expectations.

For fiscal 2026, HPE projected revenue of $17 billion to $22 billion with non-GAAP earnings between $2.30 a share to $2.50 a share, ahead of estimates of $2.36 a share.

Neri said HPE is navigating DRAM and NAND price increases by securing supply, expanding multi-year agreements, increasing prices while shortening quote commitment cycles and amending terms based on commodity cost increases. DRAM and NAND are now more than half of the bill of materials cost of a traditional server.

Neri said the pricing volatility is turning into a tailwind for its GreenLake service.

On a conference call with analysts, HPE's Neri said the following:

• "Orders significantly outpaced revenues, fueled by strong customer demand. We saw strong product orders across networking, servers and storage, driven by ongoing AI deployment, on-premises infrastructure modernization and some customer pull-ins due to ongoing commodity shortages and price increases."
• "We entered Q2 with a record AI Systems backlog of $5 billion, primarily composed of enterprise and sovereign orders, and our sales pipeline remains multiples of our backlog. We are seeing more enterprises adopting agentic AI into their company's business workflows."
• "In Q1, we approached 50,000 customers on our GreenLake cloud platform. Our ARR is on track to reach our $3.5 billion target by the end of fiscal '26, driven by strong subscription services across networking, storage and cloud software and services."