Enterprise computing infrastructure provider Hewlett Packard Enterprise Company (NYSE:HPE)’s shares are up by more than 120% over the past year. It is among a handful of firms, with the others being Super Micro and Dell, that can provide hardware to build out AI servers. After the firm reported its earnings on September 2nd, the shares have behaved erratically. They closed 5% higher on the 3rd but closed 4.5% lower on the 4th, but then closed 13% higher on the 9th. In this context, Cramer’s remarks, made in the morning on September 3rd, were rather telling:
“I liked Neri. I didn’t think that was that bad. Everyone really just dumped it on him. I don’t want to sell that stock. I don’t think the quarter was all that bad.”
Hewlett Packard Enterprise Company’s earnings were a solid set of figures on the growth and costs front. The firm’s revenue jumped by 16.2% while its networking revenue grew by 75%. Additionally, Hewlett Packard Enterprise Company’s non-GAAP gross margin significantly grew to 16.2% from the earlier 8.5%. As if the quarterly results weren’t enough, the firm also raised its fiscal year 2026 revenue growth guidance to range between 34% to 37%. The growth guidance was important since it indicated that the firm would sustain the quarter’s growth into the year. To top it off, Hewlett Packard Enterprise Company also reported $2.4 billion of AI orders in Q3 which marked a nice gain over Q2’s 1.8 billion.
However, digging deeper into the financials shows that while the firm is growing its top line and AI orders, profitability continues to be a struggle. In the third quarter, Hewlett Packard Enterprise Company’s Networking operating profit margin for the nine months ending sat at 22.4% for a drop over the previous period’s 25.1%. Additionally, the red hot networking demand could spell trouble in the future, as management outlined that orders grew 3x to 5x times faster than revenue which could delay recognition.
Considering the growth, the fact that Hewlett Packard Enterprise Company’s forward P/E multiple of 12.85 is lower than DELL’s 20 is perhaps indicative of difference in investors’ preferences for AI products. As for the hedge funds, 85 funds held a stake in Hewlett Packard Enterprise Company during Q2 which was significantly higher than the 58 in Q1. A notable new addition came from Point72 Asset Management through its $120 million stake.
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