HPE Earnings: AI Server and Hybrid Cloud Drive Growth, but Margin Woes Persist

No-moat Hewlett Packard Enterprise reported fiscal second-quarter results that exceeded our expectations, with adjusted EPS of $0.38 versus our estimate of $0.34. Strong demand for hybrid cloud solutions and artificial intelligence servers, along with lower-than-anticipated tariff headwinds, drove the beat. However, margins remained under pressure due to an unfavorable server mix and operational inefficiencies, though cost-control efforts helped offset some of the impact. Management lowered full-year GAAP earnings guidance to reflect a large goodwill charge, but raised non-GAAP EPS guidance to $1.78–$1.90. Revenue guidance was lowered to 7% to 9% growth in constant currency (from 7% to 11%), as the firm braces for tariff headwinds after the end of the 90-day tariff pause on July 9.