HPE Shines with AI Server Boom: Record Revenue and Higher Cash Flow Forecast

The boom around artificial intelligence is hitting established IT infrastructure manufacturers full force. Hewlett Packard Enterprise (HPE) delivered excellent figures for the third quarter of fiscal 2026. Driven by strong demand for AI servers and networking solutions, the company increased quarterly revenue by just under 34% to a record $12.21 billion. At the same time, management raised its full-year free cash flow forecast to at least $3.75 billion.

Record figures driven by AI systems and strong server business

HPE's operating business developed significantly better in the past quarter than the market had expected. Adjusted earnings per share (non-GAAP EPS) climbed from $0.44 in the prior-year period to $1.11, breaking the one-dollar-per-quarter mark for the first time. The main driver was the Cloud & AI segment, whose revenue rose by 25.4% to $9.0 billion. Server revenue alone increased by 35% to $6.8 billion. In the AI systems area, HPE generated revenue of nearly $1.6 billion in the quarter, while the backlog for AI systems grew sequentially by 21% to a record $7.6 billion.

Network integration and cash flow strength

The Networking division also performed strongly thanks to the acquisition of Juniper Networks: segment revenue rose by 74.9% on an unadjusted basis to $2.89 billion, with an operating margin of 22%. At the group level, non-GAAP gross margin improved to 40.4%. In addition to the increase in revenue, HPE also impressed in cash generation: free cash flow reached a record $958 million in the third quarter. For full-year 2026, HPE now expects free cash flow of at least $3.75 billion. In the fourth quarter, management plans to distribute at least 75% of free cash flow to shareholders via dividends and share buybacks.

Share price swings and market re-rating

The initial market reaction immediately after the figures were released was muted, as investors feared a short-term normalization of the high cloud margins in the coming fiscal year. By mid-September, however, a positive re-rating had taken hold in the market. Investors and analysts are increasingly rewarding the full order backlog and the solid valuation profile of the HPE share, which is trading on a price-to-earnings ratio (P/E) of about 11.4 based on future earnings. In addition, the ongoing synergies from network integration are supporting long-term earnings growth.

Opportunities and risks for investors

For private investors, the results show that traditional hardware suppliers are benefiting significantly from the implementation of AI infrastructure as the second wave of the AI boom. The high order backlog among cloud providers and enterprise customers forms a reliable foundation for the coming quarters. On the other hand, ongoing challenges in global supply chains, such as memory chips, as well as the gradual margin adjustment in the AI server business, remain. Nevertheless, the combination of robust cash flow generation, attractive valuation and clear shareholder friendliness provides a solid backdrop.

Hewlett Packard Enterprise impressively demonstrates how IT heavyweights can create sustainable value through the provision of AI servers and networking infrastructure. For investors, beyond the upcoming quarterly figures at the end of November, the key points to watch remain progress in network integration and developments in the supply chains.