Hewlett Packard Enterprise (NYSE: HPE) reported fiscal fourth‑quarter 2025 results on Thursday, December 4, that topped profit expectations but missed Wall Street’s revenue targets and came with a softer‑than‑expected sales outlook for early fiscal 2026. That combination sent the stock down roughly 4–5% in after‑hours trading, even though it has gained about 6% over the past year. [1]
At the heart of the market’s disappointment: delayed server deals, cautious enterprise IT spending in a high‑rate environment, and ongoing margin pressure from AI systems and the Juniper Networks integration—all themes echoed across analyst commentary in recent days. [2]
Key Q4 2025 Numbers at a Glance
For its quarter ended 31 October 2025, HPE delivered a mixed headline:
- Revenue: $9.7 billion, up about 14% year over year, but below analyst expectations of roughly $9.9–$9.96 billion. [3]
- Non‑GAAP EPS: $0.62, up 7% from a year ago and about 4 cents above street estimates clustered around $0.58–$0.59. [4]
- GAAP EPS: $0.11, sharply lower than the prior‑year quarter due to a different mix of charges and one‑off items. [5]
- Annualized revenue run‑rate (ARR): $3.2 billion, up 63% year over year, underscoring the rapid growth of HPE GreenLake and other “as‑a‑service” offerings. [6]
- Cash from operations: $2.5 billion, up more than $400 million year over year.
- Free cash flow: $1.9 billion, also roughly $400 million higher than last year and above management’s earlier full‑year cash flow outlook. [7]
HPE’s non‑GAAP gross margin expanded strongly to 36.4%, up more than five percentage points from a year earlier, reflecting a richer mix of networking and services and tighter cost control. [8]
In other words, the business is getting more profitable per dollar of revenue—but top‑line growth and the trajectory of future sales remain investors’ biggest concerns.
Where HPE Is Growing—and Where It’s Hurting
HPE’s results highlight a sharp divergence across its main segments.
Servers: Delayed Deals and Tough AI Competition
The server business is where the pain is most visible:
- Server revenue: $4.5 billion, down 5% year over year.
- Server operating margin: 9.8%, down from 11.6% a year earlier. [9]
Management and multiple reports point to delays in large server deals as enterprises defer big infrastructure refresh cycles in response to macro uncertainty and higher interest rates. [10]
At the same time, HPE is facing intense competition in AI‑capable servers, particularly from Dell Technologies and Super Micro Computer, which have been aggressively targeting large AI infrastructure deployments. [11]
Analysts had already flagged that HPE’s AI Systems revenue could be softer in Q4 because a major AI deal closed in the prior quarter, making year‑over‑year and sequential comparisons look weaker. [12]
Networking: Juniper Deal Turbocharges Growth
In contrast, networking is booming:
- Networking revenue: $2.8 billion, up about 150% year over year, driven largely by the roughly $14 billion Juniper Networks acquisition and strength in AI‑centric networking.
- Networking operating margin: 23%, modestly lower than 24.4% a year earlier as HPE absorbs integration costs. [13]
HPE is leaning on Aruba’s campus and branch networking portfolio and Juniper’s data‑center and AI fabric strengths to position itself as a key player in connecting AI workloads. Pre‑earnings previews pointed to growth in Intelligent Edge and Aruba platforms—now part of the broader networking story—as a major offset to weakness elsewhere. [14]
Hybrid Cloud and Financial Services: Mixed Picture
The Hybrid Cloud segment remains a drag:
- Hybrid Cloud revenue: $1.4 billion, down about 12% year over year (13% in constant currency).
- Hybrid Cloud margin: 5%, down from 7.8% a year earlier. [15]
This segment has been dealing with slower demand for traditional storage and cloud‑adjacent services, as well as prior goodwill impairments. While GreenLake is included in ARR and shows strong growth, the broader Hybrid Cloud portfolio is still in transition toward higher‑value, software‑driven offerings.
The Financial Services unit was roughly flat:
- Revenue: $889 million (flat year over year; down 2% in constant currency).
- Operating margin: 11.5%, up from 9.2%.
- Return on equity: 20.8%, almost four percentage points higher. [16]
This stable, financing‑focused business continues to generate attractive returns but doesn’t change the growth narrative in the same way as servers or networking.
Why HPE’s Q1 2026 Outlook Spooked Investors
The real blow to sentiment came not from the quarter HPE just reported, but from what it expects next.
For fiscal Q1 2026, HPE guided to:
- Revenue: $9.0–$9.4 billion
- Wall Street was looking for about $9.88–$9.90 billion. [17]
- Non‑GAAP EPS: $0.57–$0.61
- Above the consensus estimate of roughly $0.53 per share. [18]
So HPE is essentially telling investors: profits per share should be okay or even better than expected, but near‑term revenue growth will be weaker than hoped.
Management pinned the softer outlook on:
- Cautious enterprise spending amid economic uncertainty and still‑elevated interest rates, leading customers to prioritize cost optimization. [19]
- Delayed server deals in the AI infrastructure pipeline rather than outright cancellations. [20]
- A higher mix of lower‑margin AI systems and continuing integration expenses related to Juniper, which pressure margins and free cash flow, even as they drive strategic growth areas. [21]
Analysts also noted that management’s free cash flow guidance for fiscal 2026—$1.7–$2.0 billion—is below some prior sell‑side expectations around $2.2 billion. [22]
That cocktail of light revenue guidance plus cautious cash‑flow outlook explains why shares slipped in extended trading, even though Q4 earnings per share came in ahead of consensus.
Long‑Term 2026 Outlook: A Big Bet on AI and Networking
Despite the downbeat near‑term revenue guide, HPE’s management sounded confident about the multi‑year trajectory and raised several key targets for fiscal 2026:
- FY26 revenue growth: Reaffirmed at 17–22% year over year. [23]
- Non‑GAAP operating profit growth: Expected to rise 32–40% in FY26, with GAAP operating profit growing even faster off a depressed base. [24]
- Non‑GAAP EPS: New range of $2.25–$2.45, up from prior guidance of $2.20–$2.40 and well above fiscal 2025 levels. [25]
- Free cash flow: Raised midpoint, now expected between $1.7 and $2.0 billion, reflecting higher profitability and working‑capital improvements. [26]
In addition, HPE reiterated its expectation that its networking business (including Aruba and Juniper) can grow mid‑single digits annually through fiscal 2028, underscoring the company’s belief that AI‑driven networking and edge solutions will remain key growth engines. [27]
From a strategic standpoint, the long‑term story rests on three pillars:
- AI‑Optimized Infrastructure – HPE is pushing Cray EX and Cray XD supercomputers, HPE ProLiant Gen11 and Gen12 AI‑optimized servers, and high‑bandwidth networking to win large, lumpy AI cluster deals. [28]
- Networking and Edge – Juniper’s data‑center and cloud networking plus Aruba’s campus and edge portfolio give HPE a broader end‑to‑end platform to connect AI workloads and modernize enterprise networks. [29]
- As‑a‑Service via GreenLake – With ARR growing more than 60% year over year to $3.2 billion, HPE’s GreenLake platform is increasingly central to how the company monetizes hybrid cloud, storage and compute offerings. [30]
The challenge is that building these capabilities requires heavy capital, integration work and sometimes lower‑margin system sales, which compress near‑term profitability—exactly what some analysts have warned about when discussing HPE’s “lower‑margin AI systems” and Juniper integration costs. [31]
What Analysts Were Expecting Going In
Heading into the print, expectations were already tempered:
- Consensus called for Q4 non‑GAAP EPS of about $0.59 on revenue of roughly $9.96 billion, implying around 1.7% EPS growth and nearly 18% revenue growth year over year. [32]
- Over the month before earnings, that EPS consensus was revised down by about 5%, reflecting growing analyst concern over margin pressure and deal timing. [33]
A pre‑earnings note highlighted:
- Pressures: lower‑margin AI systems, Juniper integration costs, lengthening cash‑conversion cycles and delayed enterprise IT spend amid macro uncertainty and trade/tariff risks. [34]
- Offsets: growing adoption of Aruba networking, HPE GreenLake, and newer ProLiant and Cray platforms that could support top‑line momentum. [35]
Truist Financial, for example, set a $28 price target on HPE on December 1, implying almost 28% upside from the then‑current price of about $21.90 and signalling that at least some on Wall Street see the pullback as an opportunity if HPE executes on its AI and networking roadmap. [36]
Buy, Sell or Hold HPE Stock After Earnings?
Zacks and other research shops framed HPE as a “mixed” setup even before the print: strong revenue growth and an expanding GreenLake and networking business on one side, versus macro headwinds and margin pressure on the other. [37]
Based on the latest numbers and guidance, the debate breaks down roughly as follows:
What the Bulls See
- Secular AI and networking tailwinds: AI clusters, high‑speed networking and edge computing should continue to drive demand for HPE’s infrastructure portfolio over multiple years. [38]
- Rapid ARR and services growth: 63% ARR growth and stronger GreenLake traction support more predictable, higher‑margin recurring revenue over time. [39]
- Improving profitability and cash flow: Expanding gross margins, rising non‑GAAP EPS and a higher FY26 free‑cash‑flow target suggest HPE is managing its cost base and portfolio mix more effectively. [40]
- Reasonable valuation: With the stock in the low‑$20s and a $28 price target from Truist, some see potential upside if HPE hits its FY26 goals. [41]
What the Bears Worry About
- Cyclical server demand and lumpy AI deals: Delayed server orders and competitive pressure, particularly in AI‑optimized hardware, could keep revenue volatile and below investors’ expectations. [42]
- Integration and execution risk: Juniper is a major acquisition; integrating it while also driving margin expansion and hitting ambitious revenue targets is a tall order. [43]
- Free‑cash‑flow sensitivity: While HPE raised its FY26 FCF guidance, the new $1.7–$2.0 billion range still sits below some prior sell‑side forecasts, leaving little room for execution missteps. [44]
- Macro and rate environment: If global IT budgets remain under pressure from slow growth or higher financing costs, HPE’s hardware‑heavy mix may remain at a disadvantage versus more software‑centric peers. [45]
As always, whether HPE is a buy, sell or hold depends on your risk tolerance, time horizon and broader portfolio strategy. This article is for informational purposes only and is not investment advice.
What to Watch Next
For investors following HPE into 2026, a few catalysts and metrics stand out:
- Server order trends in Q1 2026
- Do delayed server deals actually close, and does HPE regain share in AI‑optimized infrastructure versus key rivals like Dell and Super Micro? [46]
- Networking and Juniper integration progress
- Watch for updates at events like HPE’s upcoming appearance at the Barclays Global Technology Conference on December 10, 2025, where management is likely to expand on the networking and AI roadmap. [47]
- GreenLake and ARR growth
- Sustaining high double‑digit ARR growth will be crucial to shifting HPE’s profile toward more recurring, higher‑margin revenue. [48]
- Margin and cash‑flow execution
- With guidance now tied to significant year‑over‑year growth in operating profit and free cash flow, any slip‑up on costs, mix or integration could quickly change the equity story. [49]
For now, the market’s verdict on Q4 2025 is clear: HPE’s AI and networking story is compelling, but investors want to see more proof that those long‑term tailwinds can overcome near‑term revenue softness and execution risk.
References
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