HPE reports record financial results driven by surging demand for AI server and networking hardware.
Hewlett Packard Enterprise (HPE) surpassed its high-end revenue guidance of $12.1 billion for the third quarter of fiscal 2026, as surging artificial intelligence demand accelerated overall enterprise spending. Revenue for the quarter ended July 31 reached $12.2 billion, a 34% year-over-year increase, while GAAP net income climbed 405% to $1.5 billion, reflecting a sharp rise in profitability. The company recorded historic order volumes, primarily driven by inferencing and agentic AI workloads. Momentum carried into the post-quarter period with a $3.5 billion inferencing server deal secured from a hyperscale customer.
HPE President and CEO Antonio Neri emphasized the sustainability of the company’s growth trajectory. “Our results demonstrate the durability of our profitable growth momentum. We delivered record revenue, orders, and profitability, fueled by surging customer demand across our portfolio. AI is becoming a multi-year growth driver for HPE, and our differentiated portfolio positions us to capture that opportunity at scale.” During the earnings call, he elaborated on the operational dynamics: “AI has become a multi-year growth driver, expanding demand across our HPE portfolio. Customer demand in the quarter accelerated across both business segments, with orders growing faster than revenues. We booked more orders than any prior quarter in our history, resulting in a record-breaking backlog for the company.”
Key financial metrics underscored the quarter’s strength. Gross margin expanded to 40.1%, up from 36.9% in the prior quarter and 29.9% a year earlier. Operating cash flow reached $1.6 billion, compared to $1.4 billion last quarter and $1.3 billion a year ago. Free cash flow hit a record $1.0 billion, surpassing $915 million in the prior quarter and $790 million a year ago. Diluted EPS rose to a record $1.06, up from $0.44 and $0.21 respectively. The company’s cash and cash equivalents totaled $6.2 billion, increasing from $5.3 billion last quarter and $4.7 billion a year ago, while total net debt decreased to $14.0 billion from $16.0 billion. HPE is deleveraging ahead of schedule, aided by $1.4 billion in proceeds from its exit from the China-based H3C joint venture.
HPE operates across two primary segments: Networking and Cloud + AI. The Networking segment generated $2.9 billion in revenue, a 74.9% year-over-year increase, with orders rising 36% to $700 million. This segment comprises four divisions: Campus and Branch revenue reached $1.4 billion, up 31% year-over-year and setting a new record; Data Center Networking posted $382 million, a 6% decline from the prior year; Security revenue grew 12% to $281 million; and Routing increased 23% year-over-year to $788 million. Addressing the networking division, Neri noted the disparity between order intake and revenue recognition: “Orders are growing 3.5 times faster than the revenue. What has limited us is the availability of supply. We expect that supply to become more aligned to our order bookings as we go forward, starting Q4.”
The Cloud + AI segment delivered a record $9 billion in revenue, representing a 25.4% year-over-year increase. Within this segment, Financial Services contributed $0.9 billion, a slight 0.3% decline year-over-year. While HPE would have shipped additional hardware absent bottlenecks, Neri explained: “Supply constraints continue to affect our ability to fulfill the increased customer demand. We are collaborating very closely with our partners to secure additional multi-year supply agreements,” specifically referencing memory and NAND inventory. The revenue growth was primarily driven by servers. “The server product category drove the outperformance with high demand for traditional servers and AI systems,” Neri said. “We saw strong demand from large enterprises, neo cloud service providers, and sovereign customers. We expect demand to remain exceptionally high as our pipeline remains multiples of our backlog.”
Executive Leadership highlighted the evolving server landscape. EVP and CFO Marie Myers observed, “Higher average selling prices drove server revenue to an all-time high. … We see enterprises increasingly moving from AI pilots to production deployments, using traditional servers for agentic AI workloads and inferencing.” Echoing trends reported by peers like Dell and NetApp, Neri identified a structural market shift: “A fundamental shift in the server business is becoming quite clear.” He added, “The way customers value their IT infrastructure is changing. Their focus is not just whether a server can run AI workloads, but also how it can enable entirely new business workflows using new AI applications. We are seeing AI-related enterprise initiatives receive higher levels of investment than traditional IT projects. There is more top-level executive engagement in making those investment decisions, including company boards, which are championing AI technology to unlock further business transformation potential.”
Regarding the recent hyperscale inferencing agreement, Neri clarified that the customer intends to deploy the infrastructure internally rather than resell services. “Think about them as an enterprise customer who is going to use our AI inferencing for their own internal usage,” he explained. The deployment relies on traditional servers rather than GPU-accelerated AI systems.
Neri also highlighted exceptional performance in the storage division. “Storage had a standout quarter with record revenue. It benefited from our decision to focus on our own IP offerings by delivering a modern multi-data protocol platform for the AI era. Customers are beginning to evaluate whether the AI workloads can be run most efficiently with the best secure data management and the lowest cost per token.” He continued, “Organizations are still in the process of modernizing data storage environments while preparing for the next generation of AI-driven workloads and applications. They want data to be close to their AI infrastructure, and they want control over sensitive information. These trends are driving strong demand for our HPE Alletra Storage MP storage solutions. We are confident our comprehensive data storage value proposition will continue to accelerate this momentum in our storage business.” CFO Myers added, “Alletra MP orders and revenue increased strong double digits year-over-year. We see robust growth potential for our X10K object and file system, broadening our AI solutions portfolio to address the rapidly expanding unstructured data market.”
Comparative analysis of storage revenue trends places HPE ahead of Everpure for the quarter, though it continues to trail market leaders Dell and NetApp.
HPE’s GreenLake subscription platform continues to expand rapidly. Customer adoption grew 18% year-over-year, reaching 52,000 accounts compared to 44,000 a year ago. Internally, HPE is leveraging AI to optimize operational costs. Myers noted, “we have expanded both our AI and operational simplification efforts across the enterprise. HPE is now deploying an internal agentic AI platform built on our own Private Cloud AI (PCAI), open-source, and open-weight models, leveraging intelligent routing that sends each workload request to the most cost-effective AI model. According to our own internal analysis, our PCAI offering can reduce token costs versus the public cloud by up to 60 percent.” She added that the architecture keeps routine tasks on-premises while reserving frontier models for highly complex work.
With Q3 results and a record order backlog, leadership raised its financial projections. Myers stated, “With our Q3 results and our order backlog at a record level, we are raising our financial outlook.” Fourth-quarter revenue guidance is set at $14.4 billion (±$450 million), representing a 48.8% midpoint increase over last year’s Q4. Full-year fiscal 2026 revenue guidance was raised from $44.6 billion (±$186 million) to $46.5 billion (±$515 million), a 35.5% midpoint increase over fiscal 2025. Sustained AI-driven demand is also prompting an upward revision for fiscal 2027. Myers continued, “Given the demand strength and sizable backlog we saw at the end of Q3, combined with some large deals we signed post quarter close, we are updating our fiscal 2027 framework and now expect consolidated revenues to grow 13-17 percent,” up from the previous 8-12% range. Neri reinforced the outlook: “Our guide is informed by what we see in the market, and the market is telling us that demand continues to be exceptionally strong.”
In parallel developments, HPE’s Juniper Networking routing and switching platforms are supporting Oracle Cloud Infrastructure’s (OCI) data center and edge networks as OCI expands its AI superclusters. Oracle is procuring additional Juniper networking equipment to interconnect its AI facilities, enabling a potential multi-year deployment of PTX and MX routing platforms, alongside QFX and EX switching platforms, across global data centers. The deployment includes multi-year networking support services, with the latest QFX switches engineered to deliver the high-density connectivity, dynamic load balancing, and advanced congestion management required for large-scale RoCEv2 (RDMA over Converged Ethernet version 2) AI backend networks. Additionally, Oracle and HPE are collaborating on intelligent telemetry solutions to enhance visibility into device and fabric behavior.