AI Server and Network Demand Surges Amid Supply Chain Challenges; HPE.US Q3 Earnings Exceed Expectations but Face After-Hours Shock

According to Zhitong Finance APP, after the US market closed on Wednesday, Hewlett Packard Enterprise (HPE.US) announced its fiscal third-quarter results for the period ending July 31. Thanks to strong demand for artificial intelligence (AI)-related servers and networking equipment, the company’s revenue and profits both exceeded market expectations, and it also significantly raised its performance outlook for both this fiscal year and next. However, HPE's share price dropped over 8% in after-hours trading as management warned that supply constraints are still limiting growth.

The financial report showed that HPE’s third-quarter revenue was $12.21 billion, a year-over-year increase of 33.7%, higher than analysts’ earlier expectations of $11.9 billion. Adjusted earnings per share (EPS) were $1.11, far exceeding the market’s expected $0.93.

HPE stated that continuous investments by cloud service providers and enterprise customers in AI, server upgrades, and data center capacity have driven strong demand for the company’s high-performance servers and networking equipment. CEO Antonio Neri said in a statement: “Our results demonstrate the durability of our profit growth momentum.” He indicated that AI is becoming the company’s “multi-year growth driver,” and HPE is well-positioned to “capture this opportunity at scale.”

Looking at the business segments, networking performed particularly well. Third-quarter networking revenue reached $2.89 billion, up 75% year-over-year. Within that, data center networking revenue was $382 million, increasing by 112.2%; routing sales revenue soared by 270%. The surge in networking was partly due to HPE’s completed acquisition of Juniper Networks in July 2025.

Cloud and AI business revenue increased 25% year-over-year to $9.0 billion. Server revenue grew 35% to $6.8 billion; storage revenue rose 10% to $1.3 billion. It’s understood that HPE produces both traditional data center servers and optimized servers equipped with NVIDIA (NVDA.US) GPUs and other AI chips, both of which benefit from enterprises transitioning toward AI workloads.

Chief Financial Officer Marie Myers stated that customers are upgrading data centers to meet new workload requirements, while the adoption of enterprise-grade AI is accelerating. She noted that the company’s third-quarter operating profit surpassed $2.0 billion, contributing to strong cash flow.

“We have a timely product portfolio,” Myers said, “and AI’s positive impact is showing across the company.” She added, “As demand continues to grow, now may be the best time to be in this business.”

Supply Chain Bottlenecks: Tight Memory, NAND, CPU, and Hard Drives

Despite robust demand, supply constraints remain a major challenge for HPE. In an interview, Myers mentioned that supply is still limited, with memory being the primary bottleneck, followed by NAND flash, CPUs, and hard drives. To address this, HPE has signed longer-term supply agreements to improve its parts sourcing capabilities.

“Demand far exceeds supply,” Myers said bluntly.

As of the end of July, HPE’s inventory was $11.82 billion, up sharply from $7.16 billion a year earlier. Myers explained that the inventory increase reflects “rising component costs, as well as targeted purchasing to support order growth and order backlog.”

Given the continuous strong demand for AI, HPE has significantly increased its outlook.

For the current fiscal year ending October 2026, the company expects revenue growth of 34% to 37%, up from the previous forecast of 29% to 33%; adjusted EPS is projected to be between $3.75 and $3.85, compared to the earlier expectation of $3.35 to $3.45. Analysts had previously anticipated revenue growth of around 31% and adjusted EPS of roughly $3.45 for this fiscal year.

For fiscal year 2027 (beginning November 1, 2026), HPE expects revenue growth of 13% to 17%, up from the prior guidance of 8% to 12%, with the midpoint of the revenue range at 15%, exceeding analysts’ average expectations of 12%; adjusted EPS is expected to grow 16% to 20%, up from the prior 12% to 16% forecast.

For the upcoming fourth fiscal quarter (ending October), HPE expects revenue of $13.9 billion to $14.8 billion, with adjusted EPS between $1.20 and $1.30, both significantly higher than analysts’ forecasts of $13.0 billion and $1.07, respectively.

Additionally, HPE announced it is expanding its partnership with Oracle (ORCL.US) to help the software giant scale its global AI infrastructure. Under the agreement, HPE will deploy HPE Juniper networking equipment in Oracle’s AI data centers. At the same time, HPE has granted Oracle warrants to purchase HPE common stock.

HPE CEO Neri also revealed that after the end of the third quarter, the company signed a $3.5 billion server supply agreement with a major cloud computing firm to support that client’s internal AI model operations. Neri did not disclose the client’s name.

Analysts Optimistic About Enterprise AI Differentiation

Prior to the earnings release, Deutsche Bank analyst Gianmarco Conti initiated coverage on HPE stock with a “Buy” rating. He described HPE as "a contrarian outlier among AI server players.”

Conti pointed out that, unlike competitors such as Dell Technologies (DELL.US) and Super Micro Computer (SMCI.US) who focus on providing low-margin products for hyperscale data centers, more than two-thirds of HPE’s $6.3 billion AI backlog is concentrated in enterprise and sovereign AI, and its networking and software businesses “truly have monetization capabilities,” resulting in a more favorable profit structure. He also said HPE’s networking products are the company’s “profit engine,” with its Juniper and Aruba products ranking second in the campus networking market.

Myers also mentioned in interviews that enterprise and sovereign customers make up the majority of HPE’s AI server demand, which is also where the company sees the biggest profit opportunity.

As of Wednesday’s close, HPE’s stock settled at $51.82, up about 116% so far this year. In after-hours trading, the share price initially fell over 3%, then narrowed losses to about 1%, essentially flat. Investor concerns over supply constraints have to some extent offset the positives from strong results and upbeat guidance.