HPE's stock soars toward record gain as earnings show a networking bonanza

By Britney Nguyen

The company saw 148% growth in networking revenue for the latest quarter

HPE delivered an earnings beat on Monday afternoon.

The artificial-intelligence buildout is driving intense demand for networking and servers, and Hewlett Packard Enterprise is reaping the rewards.

"Customers continue to invest in modernizing their infrastructure and scaling AI, and our performance shows the strength of our combined networking portfolio and the value we are delivering to our shareholders," HPE CEO Antonio Neri said in a statement.

Shares of HPE (HPE) surged 28% in after-hours action on Monday, after rising nearly 50% in May to deliver a record monthly performance.

The stock is on track to log its largest single-day increase on record if Monday's after-hours gains carry through Tuesday's regular session.

The company reported revenue of $10.7 billion for the April quarter, up 40% from a year ago and topping the $9.8 billion that analysts tracked by FactSet had been expecting. HPE reported adjusted earnings of 79 cents per share for its fiscal second quarter, which was also above the analyst consensus for 53 cents.

The strong performance led the company to raise its guidance for fiscal 2026 revenue: HPE now expects sales to grow by 29% to 33%. The company had previously guided for revenue to grow between 17% and 22%. HPE also expects networking-segment revenue to increase 72% to 75%, whereas its previous forecast called for growth between 68% and 73%.

See more: Dell's stunning 33% stock rally gave a big boost to shares of other server makers

Networking-segment revenue soared 148.2% from the previous year to $2.7 billion for the April quarter, with data-center networking revenue jumping 233.3% to $320 million. Campus and branch networking revenue made up $1.3 billion of total networking revenue and was up 50.2%.

Cloud and AI revenue was up 22.9% from a year ago to $7.7 billion, mostly made up by server revenue, which was up 32.7% to $5.5 billion.

The record-breaking quarter, which also saw HPE deliver its highest-ever second-quarter free cash flow, puts the company ahead of its financial plans for fiscal 2028 by two years, it said.

For the July quarter, HPE is guiding for revenue between $11.5 billion and $12.1 billion - ahead of the FactSet analyst consensus for $10.9 billion. The company expects adjusted earnings of between 88 cents and 93 cents for the fiscal third quarter, which beat estimates for 58 cents.

HPE's stock had been riding on some enthusiasm from fellow server maker Dell Technologies (DELL), which also delivered a better-than-expected earnings report last week thanks to demand for AI and traditional servers.

-Britney Nguyen

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06-01-26 2021ET