AI Propels HPE's Server Business: Is the Growth Thesis Strengthening?

Hewlett Packard Enterprise’s HPE server business grew 5.6% in the second quarter of fiscal 2025. It expects its third-quarter revenues to rise in mid-teens sequentially and fiscal 2025 server revenues to grow in low double digits, driven by large artificial intelligence (AI) deals and growth in AI systems.

HPE’s AI server business is driven by enterprises deploying compute-heavy infrastructure and AI factory proliferation, helping the company acquire more than $1.1B in net new order value and backlogs of $3.2 billion in AI systems in the second quarter of fiscal 2025.

HPE’s newly introduced ProLiant Gen 12 server platform, focused on performance improvement, security enhancement and direct liquid cooling technology, is a massive upgrade over its predecessors, making it capable of strengthening HPE’s competitive position in the server market.

Although HPE is experiencing a slowdown in sales of its traditional servers, its growth in AI server sales is compensating for this weakness. The Zacks Consensus Estimate for HPE’s 2025 revenues is pegged at $34.5 billion, indicating year-over-year growth of 14.2%.

How Competitors Fare Against HPE

Dell Technologies DELL is capitalizing on the strong demand for AI servers across industries, driven primarily by ongoing digital transformation and the adoption of generative AI applications. DELL has experienced sequential growth in server adoption for the consecutive five quarters in AI servers and six quarters in traditional servers.

Super Micro Computer SMCI is another server provider that is massively growing on the back of artificial intelligence (AI) workloads. As data centers are expanding their capacity and new data centers are being created, the demand for Super Micro Computer’s high-performance, energy-efficient servers is ramping up.  

Given the proliferation of AI and its massive workload demand, the growth in server-supported data center business is likely to rise in the future, driving all three giants, including HPE, DELL and Super Micro Computer, with ample opportunities to grow.

HPE’s Price Performance, Valuation and Estimates

Shares of Hewlett Packard Enterprise have gained 5.7% year to date compared with the Zacks Computer - Integrated Systems industry’s growth of 25.4%.

From a valuation standpoint, HPE trades at a forward price-to-sales ratio of 0.76, below the industry’s 3.46.

The Zacks Consensus Estimate for HPE’s fiscal 2025 earnings is pegged at $1.89 per share, which implies a decrease of 5% year over year. The consensus mark for fiscal 2026 is pegged at $2.39 per share, indicating a year-over-year increase of 26.5%.HPE's fiscal 2025 earnings remained unchanged in the past 30 days, while fiscal 2026 earnings were revised upward by 11 cents in the past 30 days.

HPE stock currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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