HPE shares achieve biggest gains since 2016 in sales of artificial intelligence servers

(Bloomberg) — Shares of Hewlett Packard Enterprise Co. rose as much as 16% in premarket trading after the company reported revenue that beat analysts’ estimates due to a big jump in sales of servers designed to handle artificial intelligence work.

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On Tuesday, the company said in a statement that fiscal second-quarter revenues increased 3.3% to $7.2 billion. Wall Street expected a 2% year-over-year decline to $6.82 billion, according to data compiled by Bloomberg. Earnings, excluding certain items, were 42 cents per share in the period ended April 30. Analysts on average estimated 39 cents.

This strong performance is due to the company’s server business, which achieved revenues of $3.87 billion. Analysts on average estimate $3.45 billion. The company said sales of AI-oriented systems doubled from the first quarter to more than $900 million. Growing demand and better availability for Nvidia Corp.’s high-power semiconductors, CEO Antonio Neri said in an interview. It led to an increase in sales of artificial intelligence systems.

Shares rose to a high of $20.44 in premarket trading on Wednesday after closing at $17.60 in New York. If the increase continues when markets open, it would be the biggest intraday gain since March 2016. While server peers Dell Technologies Inc. and Super Micro Computer Inc. Stocks jumped this year by 77% and 171%, respectively, because in the field of artificial intelligence servers, HPE stock rose by only 3.7%.

“I think the market is going to start waking up to this,” Neri said of HPE’s AI server business. “I think after today’s announcement, they will understand more.”

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HPE’s current backlog for AI systems now stands at $3.1 billion, Chief Financial Officer Mary Myers said in a conference call after the results were released. Dell said last week that its AI server backlog reached $3.8 billion.

The company said sales would range between $7.4 billion and $7.8 billion in the period ending in July. Analysts on average expected $7.45 billion. Earnings, excluding certain items, will range from 43 cents to 48 cents per share, compared with estimates of 46 cents.

For the fiscal year, HPE raised its revenue forecast to a 1% to 3% increase, from a previous forecast of flat growth to 2%. The company said profit would be about $1.90 per share at the midpoint of its range, compared with a February forecast of $1.87 per share.

“AI server ramp-up is finally starting to materialize,” wrote Wu Jin-ho, an analyst at Bloomberg Intelligence. However, the full-year outlook is disappointing given the increase in AI business, suggesting that other business lines, such as networking, are dragging down results.

HPE Intelligent Edge, which includes the networking business, reported revenue of $1.09 billion in the second quarter, compared to an average estimate of $1.25 billion. In January, HPE agreed to acquire Juniper Networks Inc. For $14 billion in a move that would enhance its network offerings. Neri said he expects customer demand to improve as the year goes on.

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