HPE raises fiscal 2026 sales forecast on AI server demand

Hewlett Packard Enterprise raised its fiscal 2026 revenue growth forecast to a range of 34% to 37%, up from a prior range of 29% to 33%, after reporting record quarterly sales driven by demand for AI servers and networking equipment.

Third-quarter revenue rose 34% from a year earlier to $12.2 billion, the company said. HPE also raised its adjusted earnings per share forecast for the full year to between $3.75 and $3.85, up from a prior range of $3.35 to $3.45.

HPE stock fell more than 5% in extended trading after the results were released. Although revenue beat the consensus analyst estimate, it missed the mark for investors who had anticipated even stronger results, according to Bloomberg.

Server revenue climbed 35% to $6.8 billion in the quarter. Networking revenue jumped 75% to $2.9 billion, driven by data center networking that more than doubled and a 270% surge in routing revenue, the company said.

Supply constraints remain a limiting factor. Chief Executive Officer Antonio Neri said on a conference call that HPE is working with partners to secure additional multiyear supply agreements, according to Bloomberg. Chief Financial Officer Marie Myers told Reuters that memory tops the list of constrained components, with NAND, CPUs, and drives also creating shortfalls, and that the company has entered into extended supply agreements to shore up access to critical parts. "Demand is far outstripping supply," Myers said.

HPE carried $11.82 billion in inventory as of late July, compared with $7.16 billion in the same period a year ago. Myers told Reuters the buildup reflected rising commodity prices and deliberate buying decisions aimed at keeping pace with an expanding order book and backlog.

For fiscal 2027, HPE raised its revenue growth outlook to 13% to 17%, up from a prior range of 8% to 12%, and projected adjusted EPS growth of 16% to 20%, compared with a previous range of 12% to 16%, the company said.

Neri said that following the end of the quarter, HPE signed a $3.5 billion agreement with a major cloud provider to supply servers supporting that company's own AI model workloads, but he would not identify the customer. HPE also announced an expanded partnership to deploy HPE Juniper networking equipment across Oracle Corp.'s AI data centers. Under the agreement, HPE granted Oracle warrants to acquire HPE shares, the companies said.

Non-GAAP diluted EPS for the third quarter came in at $1.11, the company said. HPE's order backlog reached a record level, and the company said it plans to return at least 75% of free cash flow to shareholders in the fourth quarter.