HPE beats forecasts, says AI demand will hit targets early

Hewlett Packard Enterprise said the AI buildout is no longer just lifting chipmakers and cloud giants. It is pulling through to servers, networking gear and data-center plumbing, and the company now expects to reach its long-term financial targets two years ahead of schedule.

The shift showed up in a record second quarter. HPE said revenue rose 40% to $10.7 billion, topping the $9.79 billion LSEG estimate, while adjusted earnings came in at 79 cents a share versus expectations of 53 cents. Gross margin reached 36.5%, free cash flow was $0.9 billion, and the company returned $343 million to shareholders. HPE’s shares jumped 36% in extended trading after the results.

The strongest signal came from networking. Revenue in that segment surged 148.2% from a year earlier to $2.7 billion, helped by data center networking sales that climbed 233.3% to $320 million. Cloud & AI revenue rose 22.9% to $7.7 billion. Chief executive Antonio Neri said customers are investing in modernizing infrastructure and scaling AI, a message that helps explain why demand is flowing beyond the most visible AI winners and into the equipment needed to connect and power the systems behind models such as ChatGPT.

What is driving the orders appears to be a mix of fresh demand and customers racing to secure capacity. HPE said it had more than $6.3 billion in AI backlog, with 61% tied to government and large-business customers. Marie Myers, the chief financial officer, said the company is managing a difficult pricing environment through long-term agreements that run into 2027 and by being “agile” in passing along cost increases, including price adjustments that started late last year. That combination suggests the business is not simply enjoying a one-quarter spike. It is locking in demand that may extend well into next year.

The company raised its fiscal 2026 revenue growth outlook to 29% to 33%, from 17% to 22%, and nudged its networking growth expectation to 72% to 75%, from 68% to 73%. It also said it expects AI revenue shipments to peak in the fiscal fourth quarter and introduced a fiscal 2027 revenue growth framework of 8% to 12%.

The bigger question for investors is whether this is a durable spending cycle or an early burst of fear-driven buying. HPE’s results argue for durability. Its June 1 quarter was the best in company history for revenue, gross margin, non-GAAP diluted EPS and second-quarter free cash flow, and it came after the July 2, 2025 completion of the Juniper Networks acquisition, which doubled the size of HPE’s networking business. With Alphabet and Amazon alone planning to spend more than $700 billion on AI infrastructure this year, HPE’s surge suggests the AI boom is spreading deeper into the hardware stack and may have farther to run.