HPE's ARR Grows 40% Organically: Is the Growth Thesis Strengthening?

Hewlett Packard Enterprise HPE is continuously ramping up sales of its enterprise AI factory solutions in the Private Cloud business. During the third quarter, HPE reported the addition of twice the number of new private cloud AI customers compared to the previous quarter, with a focus on its developer configuration as discussed in the earnings call.

Software offerings remain central to Hewlett Packard Enterprise’s GreenLake Cloud and for its Private Cloud portfolio, acting as a key growth driver for the ARR growth. The hybrid cloud segment is experiencing massive growth on the back of Alletra MP adoption, GreenLake cloud platform expansion, and enterprise AI use cases based on private cloud AI. These factors led to HPE’s ARR growth by 40% in the third quarter of fiscal 2025.

In June, Hewlett Packard Enterprise announced its new HPE Hybrid Cloud Ops Suite Software, by combining Morpheus, VM Essentials, OpsRamp and Zerto, to enable customers from hybrid cloud orchestration, virtualization and observability to continuous data protection.

Hewlett Packard Enterprise is benefiting from a robust demand environment for its edge-to-cloud platform, GreenLake, as customers are undergoing a major digital transformation. The GreenLake solution offers customers better visibility into resource utilization across co-located and public cloud-based workloads. This will further ramp the subscription revenues in the upcoming quarters, driving up the ARR.

How Competitors Fare Against HPE

HPE’s subscription revenues and allied ARR growth are strongly tied to hybrid and private cloud solutions. The global cloud space is led by other massive players like Amazon AMZN and Microsoft MSFT.

Amazon, through its Amazon Web Services, dominates services, including compute, storage, AI/ML, and hybrid offerings like Outposts and EKS Anywhere. Microsoft, on the other hand, has a strong presence among enterprises because of its Azure Stack. Microsoft’s collaboration with AI has equipped it with AI Factory-like deployments.

However, HPE has an edge in this space as it differentiates itself with the integration of private cloud, AI factory and networking.

HPE’s Price Performance, Valuation and Estimates

Shares of Hewlett Packard Enterprise have gained 13.3% year to date compared with the Zacks Computer - Integrated Systems industry’s growth of 87.5%.

From a valuation standpoint, HPE trades at a forward price-to-sales ratio of 0.79, below the industry’s 4.98.

The Zacks Consensus Estimate for HPE’s fiscal 2025 earnings is pegged at $1.90 per share, which implies a decrease of 4.5% year over year. The consensus mark for fiscal 2026 is pegged at $2.36 per share, indicating a year-over-year increase of 24%. HPE's fiscal 2025 and 2026 earnings have remained unchanged for 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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