By Mackenzie Tatananni
Shares of Hewlett Packard Enterprise have seen sluggish growth this year, trailing double-digit percentage gains for the broader market. And while results for the fiscal fourth quarter might have sparked a turnaround, this didn't come to fruition.
Although HPE's earnings beat expectations, the server and cloud-software company also reported a top-line miss. Shares reversed earlier losses and inched up 0.3% on Friday. Both the S&P 500 and tech-heavy Nasdaq Composite were up 0.4%.
For the current quarter, HPE sees adjusted earnings between 57 cents and 61 cents a share, beating the 53 cents analysts are anticipating. But management's forecast for revenue came in a bit light: The company predicted a range of $9 billion to $9.4 billion, below the Street's calls for $9.87 billion.
HPE reaffirmed a forecast issued in October for 17% to 22% revenue growth in fiscal 2026. The company raised its forecast for adjusted earnings by five cents at both the low and high ends, to $2.25 to $2.45 a share.
The company indicated it expects revenue to be weighted toward the back half of 2026. Artificial intelligence has something to do with it, Evercore ISI analyst Amit Daryanani indicated as he cited "sovereign AI deals materializing later in the year."
The server-and-software company has increasingly turned its focus toward larger customers, including government clients, as it looks to lift long-term profits. HPE noted on the earnings call that sovereign and enterprise bookings now account for 60% of cumulative orders since the first quarter of fiscal 2023.
"It is worth noting that we expect AI demand to remain uneven as some of our larger sovereign customers are placing orders with extended lead times, which may defer shipments to future periods," Chief Financial Officer Marie Myers told analysts on the call.
Daryanani characterized the fiscal guide as "prudent." Despite some weakness in the third-quarter print, Evercore's bull thesis remains intact, he wrote. While several moving pieces "created noise" in the quarter, strength in networking should insulate the company from fluctuating memory prices.
Results were largely mixed. Adjusted earnings of 62 cents outstripped the 58 cents analysts had expected, according to FactSet. While revenue grew 14% to $9.68 billion, this figure came in below the $9.9 billion analysts had forecast.
The company noted that the cost of memory chips was weighing on certain business lines. Server revenue declined 5% to $4.46 billion, and Hybrid Cloud sales slid 12% to $1.41 billion.
However, concerns over this weak point may be overblown, JPMorgan analyst Samik Chatterjee wrote. In his view, HPE has made real progress in its transformation to a networking industry leader, including a near-term record on gross margins.
Worries over HPE's ability to navigate memory-cost headwinds "are likely leading investors to overlook the progress HPE made in F4Q as well as the progress it is poised for...through FY26," Chatterjee continued.
Another division fared considerably better. Networking revenue more than doubled in the quarter to $2.81 billion, boosted by the acquisition of Juniper Networks in July.
Citi Research analyst Asiya Merchant highlighted management's commentary on the acceleration of orders toward the end of the quarter, "which they interpreted as signaling solid demand for their portfolio."
"Networking performed better than expected as integration synergies materialized faster than anticipated," Merchant said. She pointed to management's "constructive" commentary on navigating commodity headwinds, noting the majority of costs will be passed on.
Not everyone is as enthusiastic over HPE's prospects. In fact, KeyBanc Capital Markets analyst Brandon Nispel believes the second half-weighted guide is "problematic," per a research note Thursday.
Nispel acknowledged that HPE's combined networking business following the Juniper acquisition is "just getting started," but finds the company's growth underwhelming relative to that of peers.
As far back as June, KeyBanc argued that HPE appeared to be a underperformer in the IT hardware landscape. However, that doesn't mean it's necessarily time to sell: Nispel rates the stock at Sector Weight.
HPE is up 7.3% this year. The S&P 500 has gained more than 16% and the the Nasdaq Composite has climbed 22%.
Write to Mackenzie Tatananni at mackenzie.tatananni@barrons.com
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December 05, 2025 11:05 ET (16:05 GMT)
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