Enterprise technology company Hewlett Packard Enterprise (NYSE: HPE) beat Wall Street’s revenue expectations in Q2 CY2025, with sales up 18.5% year on year to $9.14 billion. On top of that, next quarter’s revenue guidance ($9.9 billion at the midpoint) was surprisingly good and 4.1% above what analysts were expecting. Its non-GAAP profit of $0.44 per share was 5.4% above analysts’ consensus estimates.

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StockStory’s Take

Hewlett Packard Enterprise’s second-quarter results received a notably positive response from the market, as robust demand across AI, networking, and cloud offerings was a central theme. Management attributed the strong revenue performance to the successful integration of Juniper Networks, accelerating order growth in AI systems, and improved execution in server and hybrid cloud segments. CEO Antonio Neri emphasized that customer appetite for AI solutions nearly doubled sequentially, especially in sovereign and enterprise segments. Neri added, “We exited the quarter with record AI backlog at $3.7 billion.”

Looking forward, management’s raised guidance is underpinned by expectations for continued strength in networking and AI-driven solutions, as well as the full integration of Juniper Networks. CFO Marie Myers explained that Juniper’s contribution is expected to shift revenue mix toward higher-growth, higher-margin networking, and to drive cost synergies. She also pointed to ongoing cost discipline through the company’s Catalyst efficiency program and a focus on free cash flow generation. Neri stated, “Our vision for the company is clear. To lead in the AI era through a modern secure cloud-native and AI-driven networking portfolio.”

Key Insights from Management’s Remarks

Management pointed to strong AI and networking demand, the Juniper acquisition, and improved supply chain execution as the main drivers of the quarter’s outperformance.

• AI Systems Momentum: Customer demand for HPE’s AI portfolio nearly doubled sequentially, with significant growth in sovereign and enterprise orders. The company exited the quarter with a record $3.7 billion AI backlog, reflecting robust market appetite for AI systems and solutions.

• Juniper Networks Integration: The recently closed Juniper acquisition contributed positively to both revenue and operating profit, even with only one month consolidated. Management highlighted early progress on integration, including aligning sales teams and combining portfolios to address every major networking use case.

• Networking Segment Expansion: The new combined networking segment—melding Juniper and Intelligent Edge—accounted for nearly half of HPE’s non-GAAP operating profit. Both campus and branch markets saw double-digit growth, while data center switching and security segments also performed strongly.

• Traditional Server Recovery: After resolving earlier pricing and discounting challenges, the traditional server business returned to historical operating margin levels. Gen11 and Gen12 server adoption was cited as a key factor, with customers refreshing edge infrastructure for more power efficiency and security.

• Hybrid Cloud and Storage Progress: Hybrid cloud revenue and operating margins improved, driven by increased adoption of GreenLake cloud software and strong growth in Alletra MP storage solutions. Management noted double-digit growth in cloud software revenue and a growing customer base for GreenLake cloud offerings.

Drivers of Future Performance

Management expects future performance to be driven by networking and AI demand, integration of Juniper, and rigorous cost management, but notes operational and margin headwinds remain.

• Networking and AI Integration: The full consolidation of Juniper Networks is expected to boost revenue growth and improve the company’s margin profile, especially as HPE leverages its expanded networking portfolio to capture opportunities in AI-driven infrastructure. Management believes this integrated approach better positions HPE to serve service providers, sovereigns, and enterprise customers.

• Operational Efficiency and Cost Synergies: Ongoing execution of the Catalyst cost-saving program, combined with at least $600 million in targeted Juniper-related synergies, is intended to support profitability. CFO Marie Myers noted that capturing these efficiencies is key to offsetting margin pressures from product mix and integration costs.

• Margin and Cash Flow Pressures: While management is optimistic about the long-term benefits of the Juniper acquisition, near-term margin dilution from product mix and integration expenses remains a risk. Free cash flow generation and leverage reduction are stated priorities as the company navigates higher operating costs and works to return to its target leverage ratio.

Catalysts in Upcoming Quarters

In the coming quarters, the StockStory team will focus on (1) the pace of Juniper Networks integration and realization of targeted cost synergies, (2) the conversion of HPE’s record AI backlog into revenue as new customer segments ramp, and (3) margin stabilization in networking and server segments as product mix and integration costs evolve. Execution on free cash flow and leverage reduction will also be important markers of progress.

Hewlett Packard Enterprise currently trades at $24, up from $22.85 just before the earnings. At this price, is it a buy or sell? See for yourself in our full research report (it’s free).

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