Track market-moving stories before they get noisy

Key Takeaways HPE is benefiting from AI infrastructure demand and triple-digit server order growth.HPE entered Q3 with a $5.9 billion AI Systems backlog led by enterprise and sovereign customers.HPE is strengthening AI infrastructure with Juniper and record campus networking demand. Hewlett Packard Enterprise (HPE - Free Report) is benefiting from the modernization of traditional IT infrastructure and huge capex investment in artificial intelligence. HPE’s foray beyond traditional server architecture to accommodate compute, networking, storage, security, private cloud, virtualization, software for AI data centers and AI fabs is enabling it to monetize at a rapid pace.

Simultaneously, the demand for traditional servers, led by the end of the server technology cycle, has emerged as a major growth driver, with orders increasing by triple digits year over year. Enterprises are replacing aging infrastructure while also investing in servers for AI inferencing. These two tailwinds caused a multiplier effect, driving the second quarter of fiscal 2026 revenues to reach $10.7 billion.

Looking ahead, as AI moves into production, millions of enterprises will need infrastructure to run inference close to their proprietary data and applications. HPE is also benefiting directly from AI systems demand, entering the third quarter with $5.9 billion in AI Systems backlog, primarily from enterprise and sovereign customers. Juniper acquisition has also strengthened HPE in campus networking, data-center switching, routing and security.

HPE is uniquely positioned as it is one of the few companies that provide networking solutions as part of a wider AI infrastructure support. HPE’s self-driving networking capabilities, powered by agentic AI, further differentiate the portfolio.

Furthermore, HPE’s Campus and Branch orders reached record levels, Wi-Fi 7 sales increased more than sevenfold, data-center switching orders rose nearly 20%, and routing orders increased nearly 30% on a normalized basis in the second quarter of fiscal 2026. HPE is also benefiting from disruption in virtualization, with VM Essentials customer count increasing 43% during the first half of fiscal 2026.

How Competitors Fare Against HPE StockHPE competes with Super Micro Computer (SMCI - Free Report) and Dell Technologies (DELL - Free Report) in the AI infrastructure market. However, HPE’s ability to package compute, storage, networking and services into pre-configured solutions can reduce deployment complexity for enterprises and sovereign customers while giving it an edge over its competitors.

Super Micro Computer is on track to scale rack production capacity to more than 6,000 AI racks per month by the end of fiscal 2026, including 3,000 direct liquid cooling racks monthly.  SMCI is already shipping 150kW AI racks in volume and preparing 250kW and 500kW rack solutions to support future high-density AI training and inference workloads. Dell Technologies is a major supplier of servers and storage systems, with a broad customer base across enterprises and cloud providers. Its scale, established distribution and service offerings give it an edge in winning large contracts.

HPE’s Price Performance, Valuation and EstimatesHPE has gained 106.4% in the year-to-date period. However, the company has underperformed the Zacks Computer - Integrated Systems industry, which has returned 115.4% in the same time frame.

HPE YTD Performance Chart
Image Source: Zacks Investment Research

From a valuation standpoint, HPE trades at a forward price-to-sales ratio of 1.35, below the industry’s 6.08. The discounted valuation is also reflected by the Zacks Value Score of A.

HPE Forward 12-Month (P/S) Valuation Chart
Image Source: Zacks Investment Research

The Zacks Consensus Estimate for HPE’s fiscal 2026 margin indicates year-over-year growth rate of 75.8%. Estimates have remained unchanged for the past 30 days.

Image Source: Zacks Investment Research

HPE currently flaunts a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

It has been about a month since the last earnings report for Hewlett Packard Enterprise (HPE - Free Report) . Shares have lost about 19.7% in that time frame, underperforming the S&P 500.

But investors have to be wondering, will the recent negative trend continue leading up to its next earnings release, or is Hewlett Packard Enterprise due for a breakout? Well, first let's take a quick look at its most recent earnings report in order to get a better handle on the recent catalysts for Hewlett Packard Enterprise Company before we dive into how investors and analysts have reacted as of late.

HPE Q2 Earnings Surpass Expectations, Revenues Rise Y/YHewlett Packard Enterprise reported better-than-expected results for second-quarter fiscal 2026.  HPE’s non-GAAP earnings of 79 cents per share beat the Zacks Consensus Estimate by 46.3% and increased 107.9% year over year.

HPE posted revenues of $10.7 billion for the quarter, beating the Zacks Consensus Estimate by 8.7%. The company’s revenues increased 40.0% year over year.

HPE’s quarterly performance was supported by strong demand across the portfolio, with orders more than doubling year over year and driving a record backlog. Management also highlighted progress in Juniper integration and the Catalyst initiative, which remained ahead of schedule.

HPE’s Segment-Wise PerformanceHewlett Packard’s Networking segment generated $2.7 billion in revenues in the second quarter of fiscal 2026, up 148.2% year over year. The segment’s operating profit margin was 21.6%, down from 25.0% in the year-ago quarter.

Within Networking, Campus & Branch revenues were $1.3 billion, up 50.2% year over year. Data Center Networking revenues were $320 million, up 233.3%, and Security revenues were $273 million, up 155.1%. Routing revenues were $775 million compared with $1 million in the year-ago quarter.

The Cloud & AI segment reported $7.7 billion in revenues, up 22.9% year over year, with an operating profit margin of 12.4%, up from 6.6% in the prior-year period.

Within Cloud & AI, Server revenues were $5.5 billion, up 32.7% year over year. Storage revenues totaled $1.2 billion, up 2.4%, while Financial Services contributed $0.9 billion, up 5.6% year over year.

HPE’s Corporate Investments and Other revenues came in at $281 million, up 3.3% from the prior-year period.

HPE’s Operating ResultsHewlett Packard’s non-GAAP gross profit for the second quarter of fiscal 2026 was $3.94 billion compared with $2.24 billion in the year-ago quarter, while the non-GAAP gross margin expanded to 36.9%, up 750 basis points year over year.

The company’s non-GAAP operating profit was $1.4 billion compared with $613 million in the year-ago quarter. The non-GAAP operating margin improved to 13.3%, up 530 basis points from the year-ago quarter.

HPE’s Balance Sheet and Cash FlowHewlett Packard ended the second quarter with $5.29 billion in cash and cash equivalents compared with $4.84 billion at the end of the previous quarter.

In the second quarter, HPE generated $1.4 billion in cash from operating activities and produced $915 million in free cash flow. The company returned $343 million through dividends and share repurchases during the quarter.

HPE Updates FY26 GuidanceHewlett Packard raised its outlook following the strong quarter and improved second-half visibility. For the third quarter of fiscal 2026, HPE expects revenues in the range of $11.5-$12.1 billion.

It anticipates non-GAAP earnings per share of 88-93 cents.

For fiscal 2026, HPE raised its revenue growth outlook to 29-33% and expects non-GAAP earnings per share of $3.35-$3.45.

The company also lifted its free cash flow outlook and now expects free cash flow to be at least $3.5 billion. Separately, HPE introduced a fiscal 2027 framework calling for revenue growth of 8-12% and free cash flow of at least $4.5 billion.

How Have Estimates Been Moving Since Then?It turns out, fresh estimates have trended upward during the past month.

The consensus estimate has shifted 71.61% due to these changes.

VGM ScoresAt this time, Hewlett Packard Enterprise has a nice Growth Score of B, a grade with the same score on the momentum front. Following the exact same course, the stock has a grade of B on the value side, putting it in the second quintile for value investors.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

OutlookEstimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Hewlett Packard Enterprise has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.