HPE jumps after reporting strong sales in server AI demand

(Bloomberg) — Hewlett Packard Enterprise Co . reported revenue that beat analysts’ estimates on a big increase in sales of servers built to handle artificial intelligence work. Shares gained 17% in extended trading.

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Fiscal second-quarter revenue rose 3.3% to $7.2 billion, the company said Tuesday in a statement. Wall Street had forecast a 2% year-over-year decline to $6.82 billion, according to data compiled by Bloomberg. Earnings, excluding certain items, were 42 cents per share in the period ended April 30. Analysts on average estimated 39 cents.

The strong performance was due to the company’s server business, which generated revenue of $3.87 billion. Analysts, on average, estimated $3.45 billion. Sales of AI-driven systems doubled from the first quarter to more than $900 million, the company said. Increasing demand and better availability of high-power semiconductors from Nvidia Corp. led to increased sales of AI systems, Chief Executive Antonio Neri said in an interview.

Shares rose to a high of $20.90 in extended trading after closing at $17.60 in New York. While server peers Dell Technologies Inc. and Super Micro Computer Inc. have seen stock gains this year of 77% and 171%, respectively, due to their AI server businesses, HPE stock is up just 3.7%.

“I think the market is going to start waking up to that,” Neri said of HPE’s AI server business. “I think after today’s announcement, they will understand even more.”

HPE’s current support for AI systems is now $3.1 billion, Chief Financial Officer Marie Myers said on a conference call after the results were released. Dell said last week that its AI server count was $3.8 billion.

Sales will be $7.4 billion to $7.8 billion in the period ending in July, the company said. Analysts, on average, predicted $7.45 billion. Earnings, excluding certain items, will be 43 cents to 48 cents per share, compared with an estimate of 46 cents.

For the fiscal year, HPE raised its revenue outlook to a 1% increase to 3%, from a previous forecast of flat growth to 2%. The company said earnings will be about $1.90 a share at the midpoint of its range, compared with a February forecast of about $1.87 a share.

“The rise of AI servers is finally materializing,” wrote Woo Jin Ho, an analyst at Bloomberg Intelligence. However, the full-year forecast is weak given the growth of the AI ​​business, suggesting that other business lines, such as networking, are dragging down results, he said.

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HPE’s Intelligent Edge, which includes the networking business, reported $1.09 billion in revenue in the second quarter, compared to the average estimate of $1.25 billion. In January, HPE agreed to buy Juniper Networks Inc. for $14 billion, to an extent that will increase its network offering. Neri said he expects improvement in customer demand as the year progresses.

(Updates with server load in paragraph six.)

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