HP Enterprise (NYSE:HPE) is up about 15% today and is one of the top-trending tickers on social media and financial news websites. HPE stock is rallying and getting a great deal of attention after the computer hardware maker reported stronger-than-expected quarterly financial results. The company’s strong performance was driven by the strength of its artificial intelligence (AI) server business.
Beat-and-Raise Results
HP’s fiscal Q2 top line rose 3% compared to the same period a year earlier to $7.2 billion, versus analysts’ average estimate of $6.8 billion. The company’s earnings per share came in at 42 cents, versus analysts’ mean estimate of 39 cents. Also importantly, its free cash flow soared to $610 million in Q2 versus $310 million during the same period a year earlier. Finally, the firm increased its full-year adjusted EPS guidance to $1.85 to $1.95 up from its previous outlook of $1.82 to $1.92.
AI Servers Were the Key Drivers for HP Enterprise
The company’s beat-and-raise performance was primarily due to the strength of its AI server business. Specifically, the revenue of its server business jumped 18% year-over-year to $3.9 billion, while the sales of its AI systems jumped over 100% versus the previous quarter to more than $900 million.
HP said that its server business is benefiting from the greater availability of Nvidia’s (NASDAQ:NVDA) AI chips. The firm added that its “pipeline” of AI systems business is “multiples” above its current AI systems order total of $4.6 billion. Finally, HP noted that the demand for its AI products is becoming more widespread geographically and in terms of the number of customers.
Can the AI Boom Continue to Boost HPE Stock?
The AI revolution does not show signs of meaningfully slowing down, and the demand for HP’s AI servers is obviously quite strong and growing rapidly.
On the other hand, HP admitted that the increased demand for its AI systems is pushing down its margins. At some point, the street could become concerned about this issue, even though the firm does expect the operating margin of its overall server business to come in at a decent 11% for its full fiscal year.
On the date of publication, Larry Ramer did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines