HPE's Financial Surge Led By AI Demand Despite Margin Pressures, Analysts Optimistic About Future Growth

Hewlett Packard Enterprise Company HPE shares are trading higher following better-than-expected Q2 financial results.

Yesterday, Hewlett Packard Enterprise reported quarterly earnings of 42 cents per share, which beat the analyst consensus estimate of 39 cents by 7.69%.

The company sees third-quarter EPS of $0.43 and $0.48, versus the $0.47 estimate, and revenue of $7.4 billion to $7.8 billion, versus the $7.46 billion estimate. The company sees full-year EPS of $1.85 and $1.95 versus the $1.88 estimate.

Goldman Sachs analyst Michael Ng writes that Storage margins showed weakness, particularly in Hybrid Cloud margins, driven by the transition to an as-a-service model, and the company anticipates improvements in storage margins over the year.

Despite Intelligent Edge continuing to be weak, it is expected to experience sequential revenue growth in the second half of the fiscal year and return to mid-twenties EBIT margins, says the analyst.

Consequently, Michael Ng revised the revenue and EPS projections upwards for FY24/FY25/FY26 by 8% on increased AI server revenue. The analyst is Not Rated on HPE.

JP Morgan analyst Samik Chatterjee writes that HPE’s results and outlook align with recent trends among AI server vendors.

The result reflects robust AI demand driving impressive revenue performance and outlooks, but this growth comes at the expense of margins due to the dilutive nature of AI servers and competitive pricing pressures, says the analyst.

Chatterjee writes that Despite these challenges, HP Enterprise showcased strong execution on both fronts. In particular, its server margin only saw a slight moderation in F2Q24.

The analyst increased the revenue forecast, mainly due to greater confidence in the AI Server revenue ramp and FY24E EPS estimate to $1.93 (previously $1.85) and FY25E EPS estimate to $2.05 (previously $2.00). The analyst is Not Rated on HPE.

Related: These Analysts Boost Their Forecasts On Hewlett Packard Enterprise After Strong Results

Investors can gain exposure to the stock via First Trust S&P 500 Diversified Dividend Aristocrats ETF KNGZ and First Trust Exchange-Traded Fund First Trust S&P 500 Diversified Free Cash Flow ETF FCFY.

Price Action: HPE shares are up 11.91% at $19.71 at the last check Wednesday.

Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.