- HPE’s AI-driven revenue growth is surging, with AI server sales tripling yoy.
- The company’s diversified portfolio and strong AI momentum make it a standout in the tech sector.
- Investors should be mindful of risks like macroeconomic pressures and rising input costs despite HPE’s strong performance.
Hewlett Packard Enterprise (NYSE: HPE) has shown impressive results in its latest financial report for Q3 FY2024, riding the momentum of the Artificial Intelligence (AI) revolution. The company’s strong performance was primarily driven by a surge in AI server revenue, which grew over 3x year-on-year (yoy), bringing the total to $1.3 billion. AI orders jumped significantly, and with a robust backlog of $3.4 billion, HPE continues to gain traction in the AI landscape. This exciting growth, coupled with improved earnings and a solid revenue outlook, makes HPE an intriguing player in the tech space.
What Does This Mean for Investors?
The latest developments position HPE as a key player in the AI and data infrastructure arena. The company’s strong AI-driven growth highlights its ability to tap into the growing demand for AI solutions, especially in training applications and enterprise experiments. The guidance for Q4 FY2024 sales between $8.1 billion and $8.4 billion, along with a non-GAAP EPS forecast of $0.52–$0.57, offers a compelling growth story. HPE is not just keeping pace but is exceeding expectations in a space where competitors face macroeconomic pressures.
Why Invest in HPE Now?
The case for investing in HPE is rooted in its robust AI momentum and steady performance in challenging macro environments. AI servers have become the crown jewel of HPE’s portfolio, not only contributing to growth but also providing a competitive edge. Despite challenges such as rising input costs, HPE’s operating margins remain resilient, thanks to a solid product mix and an increasing focus on AI.
With AI orders surging and traditional server products maintaining growth, HPE’s diversified portfolio ensures that it is not reliant on any one segment. The company’s continued investments in Intelligent Edge and Hybrid Cloud also show promise for future growth.
For those looking to invest, the combination of growth in AI infrastructure, steady earnings, and the company’s strategic acquisitions (like the pending Juniper Networks deal) make HPE a standout option in the tech sector.
Key Risks to Watch Out For
While HPE’s AI growth story is compelling, investors should remain cautious of several key risks:
- Macroeconomic Pressures: The broader IT spending landscape, especially for non-AI segments like Hybrid Cloud, remains under pressure. Sluggish growth in these areas could impact overall revenue.
- Margin Pressures: Rising input costs have been impacting margins, and while HPE has managed these headwinds well, future cost increases could erode profitability.
- Cloud Shift: The global shift toward cloud computing poses a threat to traditional on-premise infrastructure, where HPE still generates a significant portion of revenue. While the company is making strides in Hybrid Cloud, it must continue to innovate to stay competitive.
- Competition in AI: The AI market is rapidly evolving, and HPE faces stiff competition from major tech players. A slowdown in AI server demand or missteps in execution could affect the company’s growth prospects.
Time to Ride the AI Wave with HPE?
With its strong AI momentum, solid earnings growth, and attractive valuation, HPE presents an enticing opportunity for investors looking to tap into the growing AI infrastructure market. While there are risks to consider, the company’s strategic positioning and resilient performance make it a stock to watch. Ready to take the plunge? Be sure to carefully assess how investing in HPE aligns with your overall portfolio strategy and long-term goals before making any decisions.
Disclaimer: ProsperUs Head of Content & Investment Lead Billy Toh doesn’t own shares of any companies mentioned.
