HPE Shares Drop as Weak Forecast Overshadows Strong Earnings Beat
The tech giant's shares fell 4% in extended trading after its first-quarter revenue outlook fell significantly short of Wall Street estimates, souring an otherwise solid quarterly report.
Hewlett Packard Enterprise shares fell nearly 4% in after-hours trading on Thursday, as a disappointing first-quarter revenue forecast overshadowed a strong earnings beat, signaling potential headwinds from cautious enterprise spending.
The enterprise technology firm projected revenue for the upcoming quarter in a range of $9.0 billion to $9.4 billion, well below the $9.9 billion average analyst estimate. The weak guidance immediately tempered investor enthusiasm from a fourth quarter that saw the company post a significant beat on profitability.
For its fiscal fourth quarter, HPE reported a non-GAAP diluted net earnings of $0.62 per share, handily beating the consensus estimate of $0.58. Quarterly revenue came in at $9.68 billion, a 14% increase year-over-year. This performance was largely powered by the company's strategic focus on high-growth sectors, particularly networking.
The company’s Networking segment was the standout performer, with revenue soaring 150% year-over-year to $2.8 billion. This surge was primarily attributed to the successful integration of Juniper Networks, an acquisition aimed at challenging Cisco's dominance and capitalizing on the build-out of AI-native networks. The robust growth validates HPE's strategic M&A activity as a key pillar of its growth strategy.
"We delivered a strong end to our fiscal year, demonstrating the relevance of our strategy and innovation," said Antonio Neri, president and CEO of HPE, in a statement. "Our strategic shift to higher-growth, higher-margin areas is working."
However, the Server segment, which includes the closely watched AI systems business, saw revenue decline 4.6% year-over-year to $4.46 billion. Company executives noted this was anticipated, attributing the dip to the timing of a large AI systems deal that was pulled forward and shipped in the third quarter. Despite the quarterly decline in revenue, HPE has been building a formidable backlog in AI infrastructure. The company reported a record AI systems backlog of $3.7 billion at the end of its third quarter, indicating that underlying demand remains exceptionally strong, even if quarterly revenue recognition can be uneven.
Despite the near-term revenue caution, HPE's leadership expressed confidence in its long-term profitability, raising its full-year 2026 non-GAAP earnings per share guidance. This suggests the company expects to manage costs effectively and benefit from a richer product mix, even if top-line growth moderates.
The market's negative reaction underscores the intense scrutiny investors are placing on forward-looking statements amid an uncertain macroeconomic environment. While HPE's fourth-quarter results demonstrated successful execution in its pivot to AI and networking, its cautious outlook for the coming months proved to be the more influential factor for investors, who sent the stock down to $21.99 in extended trading.