Hewlett Packard Enterprise (HPE) shares surged 19.5% to close at $56.15 on Tuesday, driven by the company's raised fiscal 2026 revenue growth outlook to 29-33% following record second-quarter sales. However, in premarket trading on Wednesday, shares slipped 1.5% to $55.30 as investors weighed the sustainability of the rally.
Record Quarter and Raised Guidance
HPE reported fiscal second-quarter revenue of $10.7 billion, a 40% year-over-year increase. Non-GAAP earnings per share came in at $0.79, topping earlier guidance. Free cash flow for the quarter was $900 million. The company now expects full-year revenue growth of 29% to 33%, with adjusted EPS guidance raised to $3.35-$3.45. HPE noted that its profit and cash flow targets have already exceeded expectations originally set for fiscal 2028.
AI Infrastructure Demand Drives Growth
CEO Antonio Neri highlighted that customers continue to invest in infrastructure upgrades and AI capabilities. CFO Marie Myers attributed the strong quarter to HPE's core server business, with demand coming from enterprise customers beyond the large cloud providers. The company's Cloud & AI revenue rose 22.9% to $7.7 billion, while server revenue grew 32.7%. Networking revenue surged 148.2% to $2.7 billion, boosted by the Juniper Networks acquisition and increased demand for networking fabric in AI data centers.
Analysts Raise Price Targets
Following the earnings report, major banks quickly revised their price targets. Morgan Stanley's Erik Woodring raised the target to $71 from $33, maintaining an Equal Weight rating, citing improved server pricing and orders. UBS lifted its target to $65, Raymond James to $74, JPMorgan to $68, and Bank of America to $80. At least 12 brokerages raised their HPE price targets, linking the stock move to AI server demand, a trend that has also benefited Dell Technologies and Super Micro Computer.
Backlog and Order Momentum
Neri told analysts that HPE secured $1.8 billion in new AI systems orders and enters the third quarter with a $5.9 billion backlog of orders waiting to be converted into revenue. He emphasized that HPE will prioritize profitability and working capital in handling AI systems deals, noting that not all AI orders carry the same value.
Risks and Challenges
Despite the positive outlook, risks remain. AI server orders can be uneven, and ongoing supply constraints could push some revenue into future quarters. Rising memory chip costs for DRAM and NAND may pressure margins if customers resist price hikes. Morgan Stanley also flagged weak visibility on enterprise demand beyond fiscal 2027 after the stock's strong run.
Upcoming Investor Events
HPE will host investor programming at HPE Discover on June 16, featuring a keynote by Neri and an investor summit. Management will have the opportunity to demonstrate whether Tuesday's rally was a short-term earnings pop or the beginning of a sustained transformation.
