Hewlett Packard Enterprise (HPE, Financial) experienced a significant boost, exceeding analyst expectations in Q4 due to strong demand for AI systems. Despite projecting Q1 numbers in line with consensus, management is optimistic about 2025, citing multiple growth drivers. This optimism has pushed HPE shares to a new record high, marking a +50% increase following a previous sell-off in early September.
- HPE's adjusted EPS rose by 11.5% year-over-year to $0.58, surpassing bottom-line estimates. Despite a 390 basis point drop in non-GAAP gross margins to 30.9% due to AI systems' lower margins and reduced Intelligent Edge sales, non-GAAP operating margins increased by 140 basis points to 11.1% thanks to cost reductions.
- Revenue grew for the third consecutive quarter, up 15.1% year-over-year to $8.46 billion, exceeding the forecast range of $8.10-8.40 billion. The Server segment was a key driver, with a 31% year-over-year increase to $4.7 billion, supported by AI systems and traditional servers. The AI systems backlog reached over $3.5 billion, while traditional server orders saw double-digit growth for the third consecutive quarter.
- Hybrid Cloud revenue increased by 18% year-over-year to $1.6 billion, outperforming expectations. Growth was driven by Private Cloud and the Alletra MP ramp-up. Financial Services also saw a 2% increase to $893 million, with financing volumes reaching a record high of $2.1 billion due to strong demand for AI investment and cloud adoption.
- Intelligent Edge revenue fell by 20% year-over-year to $1.1 billion. However, HPE remains positive about recovery prospects, noting that customers have largely adjusted their inventories and are seeing more large deals in the pipeline.
- For the next quarter, HPE anticipates adjusted EPS of $0.47-0.52 and mid-teens percentage revenue growth year-over-year. While Intelligent Edge recovery might lead to flat growth, a shift towards AI servers could increase revenue but reduce margins.
HPE's Q4 results alleviated concerns from the previous quarter regarding certain clients and regions, showcasing ongoing recovery. The company is leveraging a strong AI trend to drive growth into 2025. Additionally, HPE expects to finalize its acquisition of Juniper Networks (JNPR, Financial) by early 2025, enhancing its portfolio with complementary offerings.
