Earnings Report Preview | With consecutive "explosions" in the same industry, will Huiyu Technology's acquisition of Juniper Networks become the key to "breaking the deadlock"?

According to the Zhitong Finance APP, Hewlett Packard Enterprise (HPE.US) will announce its third-quarter earnings after the U.S. stock market closes on Wednesday. Wall Street analysts predict that Hewlett Packard Enterprise's earnings per share will be $0.43, a decrease of 14% compared to the same period last year. Revenue is expected to reach $8.78 billion, an increase of 13.9% year-over-year. Over the past 30 days, the consensus forecast for earnings per share for this quarter has been revised upward by 1.95%, reaching the current level.

The computing power required to run artificial intelligence tools has brought a sales boom to high-performance server manufacturers such as Dell (DELL.US), Supermicro (SMCI.US), and Hewlett Packard Enterprise. However, investors have been concerned about the profitability of AI servers, as these servers rely on expensive processors produced by companies like NVIDIA (NVDA.US) and AMD (AMD.US).

Previously, NVIDIA's earnings report was somewhat disappointing. At the same time, Dell Technologies reported a decline in AI server sales compared to the previous quarter, and the profit margins for these high-performance machines were below analysts' expectations. In the second quarter ending August 1, Dell recorded $5.6 billion in AI server orders, down from $12.1 billion in the previous quarter. The company shipped servers worth $8.2 billion this quarter, with a backlog of orders valued at $11.7 billion at the end of the quarter.

Earlier, Supermicro unexpectedly lowered its earnings forecast, expecting total sales for the fiscal year ending June 2026 to reach at least $33 billion. In contrast, in February of this year, Supermicro's management had given a very optimistic long-term outlook due to strong demand for AI server product lines, stating that fiscal year sales would reach $40 billion, which was nearly double Wall Street analysts' estimates for the fiscal year, leading to a sharp sell-off in the stock market after the earnings forecast was lowered.

However, it is also noteworthy that the company has acquired Juniper Networks. After acquiring Juniper Networks, analysts believe that the acquisition will lead to an increase in the company's performance. The third-quarter earnings will mark a turning point for the company's performance, as Juniper Networks' results will be integrated into Hewlett Packard Enterprise's overall performance; thanks to this, its momentum in the artificial intelligence systems field is strengthening.

After the acquisition of Juniper Networks, Morgan Stanley upgraded Hewlett Packard Enterprise's rating to "Overweight," citing the potential for growth in the AI and networking sectors following the acquisition of Juniper Networks. This rating upgrade comes as the technology services company seeks to capitalize on the growing demand for AI-related hardware and services.

The acquisition of Juniper Networks has significantly enhanced Hewlett Packard Enterprise's influence in the networking field and further increased its investment in artificial intelligence technology. Morgan Stanley analysts believe that this acquisition will significantly boost Hewlett Packard's profits, with expected earnings per share for fiscal year 2026 projected to be 18% higher than current expectations, and for fiscal year 2027, earnings per share are expected to reach $2.70 to $3.00.

This rating upgrade is part of Morgan Stanley's overall optimistic sentiment towards the entire technology hardware industry. Morgan Stanley has also raised target prices for other companies in the sector, including Dell and NetApp (NTAP.US), indicating that the outlook for corporate technology spending (especially in AI and networking-related fields) is generally optimistic In addition, the company's analyst meeting in October is seen as the most important upcoming positive factor, during which HP is expected to provide a longer-term forecast that will help the market better assess the company's future earnings and cash flow potential.

Furthermore, Evercore ISI analyst Amit Daryanani believes that Nvidia's earnings situation sends positive signals to several tech companies he is focused on—although the after-hours stock prices of these companies do not reflect this. He pointed out that Dell and HPE may benefit from the trends emphasized by Nvidia's management. Daryanani wrote, "Looking ahead, the computing power required for autonomous AI in reasoning and training processes seems to be greater than expected, and we believe this will lead to sustained demand growth, especially from the customer base targeted by Dell and HPE."

Seeking Alpha analyst Deep Value Investing also noted that HPE's momentum in the AI systems sector is continuously strengthening. This is evident from aspects such as orders, conversion rates, backlog, and short-term revenue growth.

In the past quarter, the company secured $1.1 billion in new AI orders, with about one-third coming from the enterprise sector, and the sovereign business performing particularly strongly. The company achieved $1 billion in AI revenue in the second fiscal quarter. This figure represents a more than 10% quarter-over-quarter increase, whereas the initial expectation was for a slight decline.

The company still has $3.2 billion in unfulfilled revenue in the AI systems sector. In the third fiscal quarter, due to the upcoming completion of the Blackwell NVL72 deployment, this business area is expected to see strong double-digit revenue growth, with a significant increase.

However, analysts have pointed out risk factors: one underperforming category is the profit margin of the server business segment—which is also an issue faced by the aforementioned HPE competitors. In the second fiscal quarter, the operating profit margin for the server business was 5.9%, a year-over-year decline of 510 basis points and a quarter-over-quarter decline of 220 basis points. Notably, the quarter-over-quarter decline is indeed concerning; if the company cannot improve the profit margin of this business segment before the end of the year, it will pose a risk to the bullish outlook. Management expects the operating profit margin for the server business in the third fiscal quarter to be in the mid-to-high single digits, due to an increase in the share of AI systems. Given this expectation, it seems that the profit margin for this business segment will not recover to around 10% until after the fourth quarter of fiscal year 2025. In the last quarter, this segment accounted for 53% of total revenue. However, its operating profit only accounted for 36% of total profit. Analysts pointed out that for continued growth, this situation must improve