HPE Stock Trades at Record High On Strong AI Server Sales

(Bloomberg) -- Hewlett Packard Enterprise Co. shares surged as much as 16% to trade at a record high after the company reported better-than-expected revenue fueled by sales of servers built for artificial intelligence work.
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Fiscal second-quarter revenue increased 3.3% to $7.2 billion, the company said Tuesday in a statement. Wall Street projected a 2% decline year over year to $6.82 billion, according to data compiled by Bloomberg. Profit, excluding some items, was 42 cents per share in the period ended April 30. Analysts, on average, estimated 39 cents.
The strong performance was due to the company’s server business, which generated revenue of $3.87 billion. Analysts, on average, estimated $3.45 billion. Sales of AI-oriented systems doubled from the first quarter to more than $900 million, the company said. Increased demand and better availability of high-powered semiconductors from Nvidia Corp. led to the increase in AI systems sales, Chief Executive Officer Antonio Neri said in an interview.
The shares rose 16% to a high of $20.43 Wednesday after closing at $17.60 in New York. That’s the biggest intraday gain since March 2016 and the highest the stock has traded since HPE’s 2015 split from personal computer-oriented HP Inc.
Shares of HPE have risen just 3.7% through Tuesday’s close, a modest increase compared with its peers in the server space, including Dell Technologies Inc. and Super Micro Computer Inc., whose shares have jumped 77% and 171%, respectively, over the same period.
“I think the market will start waking up about this,” Neri said of HPE’s AI server business. “I think after today’s announcement, they will understand even more.”
HPE’s current backlog for AI systems is now $3.1 billion, Chief Financial Officer Marie Myers said on a conference call after the results were released. Dell said last week its AI server backlog was $3.8 billion.
This is the first quarter HPE has broken-out AI server revenue “and investors likely welcome the increased disclosure,” wrote Simon Leopold, an analyst at Raymond James.
Sales will be $7.4 billion to $7.8 billion in the period ending in July, the company said. Analysts, on average, projected $7.45 billion. Profit, excluding some items, will be 43 cents to 48 cents a share, compared with an estimate of 46 cents.