AI server demand is strong, Hewlett Packard Enterprise (HPE) performance exceeds expectations, and orders from the Middle East have emerged

Enterprise-level AI server orders have surged, and HPE, a company spun off from HP that specializes in computer hardware and storage devices, is transforming into an AI "arms dealer."

On June 3rd, after the U.S. stock market closed, HPE announced strong second-quarter results and raised its guidance for the third quarter. HPE reported an adjusted earnings per share of 38 cents for the second quarter, with revenue of $7.63 billion, a year-on-year increase of 6%, exceeding the consensus expectation of $7.45 billion. The company secured $1.1 billion in net new orders in the second quarter, with about one-third coming from enterprise customers. AI backlog orders soared to $3.2 billion, with sovereign clients in the Middle East becoming a new growth engine.

According to media reports, HPE's Chief Financial Officer Marie Myers stated that the company is currently accelerating the deployment of NVIDIA's new Blackwell series GB200 products. The $3.2 billion AI backlog is just the tip of the iceberg, as the overall pipeline scale is "multiple times" this figure. Beyond AI servers, HPE's traditional business also shows signs of recovery:

• Total server revenue grew by 6% this quarter to $4.06 billion;
• Hybrid cloud business revenue increased by 13% to $1.45 billion;
• Networking business achieved revenue and profit growth for the first time after five consecutive quarters of decline, a shift also driven by the advancement of AI.

With strong demand for AI servers, HPE's second-quarter performance exceeded expectations, and its stock price rose about 5% in after-hours trading on Tuesday.

Middle Eastern Sovereign Clients Become New Growth Engine

HPE's performance highlights are not only reflected in the traditional enterprise market; the strong demand from sovereign clients is becoming a new catalyst.

Reports indicate that HPE is benefiting from a surge in enterprise spending on advanced data center architectures, which are designed to support the complex processing needs of generative AI.

Additionally, the company's management specifically mentioned the growth momentum brought by AI development in the Middle East, a trend that partly reflects HPE's expertise in direct liquid cooling technology—crucial for handling the high heat generated by today's AI chips.

Myers stated that the next-generation products are being shipped, and due to richer technical configurations, they are priced higher.

CEO Antonio Neri added during the earnings call that the pipeline at the end of this quarter is stronger than the previous quarter, "which reinforces the correctness of our strategy."

Optimistic Outlook but Regulatory Challenges Remain

Looking ahead to the third quarter, HPE expects revenue of $8.2 billion to $8.5 billion, while FactSet analysts previously expected around $8.2 billion. Adjusted earnings per share are expected to be between 40 to 45 cents, with the FactSet consensus expectation at 41 cents.

Myers stated during the earnings call:

We continue to navigate through a complex macroeconomic and geopolitical environment and are prepared to take additional actions in the second half of the year to achieve our fiscal year 2025 outlook.

However, regulatory risks remain a Damocles sword hanging over our heads.

Reports indicate that the company is awaiting a court hearing with the U.S. Department of Justice on July 9, as the DOJ attempts to block HPE's acquisition of Juniper Networks. Both HPE and Juniper insist that their businesses are complementary and that there are various alternative networking solutions available in the market.

In the new battleground of AI servers, HPE is transforming from a traditional hardware supplier to a key player in AI infrastructure. Orders from sovereign clients in the Middle East are just the beginning; the real test will be whether it can establish a foothold in this round of the AI arms race