Welcome back to Market Movers, the opening bell, while the AI race is no longer just about chatbots and graphic chips.
Today, the companies building the critical hardware, networking, and cloud infrastructure underneath are generating real-world returns.
At the forefront is HPE, fresh off a record-breaking third quarter and just announcing a major expanded partnership with Oracle for gigawatt-scale AI infra powered by HPE Juniper Networking.
And with enterprise AI adoption accelerating, the company is once again raising its outlook for this fiscal year and the next.
Well, joining us live to break down these record numbers and HPE's growth strategy is Marie Myers, Executive VP and Chief Financial Officer of HPE.
Marie, good morning.
Thank you so much for joining us.
So as earning season is winding down, you just raised full year sales guidance to as high as 37% and also announced a multi-year deal with Oracle.
So how much of this accelerating forecast is being driven by these mega deals with cloud providers versus broader enterprise AI adoption?
Good morning, Remy.
It's a pleasure to be here.
Why don't I start out by giving you a rundown on the quarter.
Look, we just saw exceptionally strong demand and that resulted, as you said, in a beat and a raise.
And, you know, frankly, we had record breaking across all our key financial metrics.
It really was a phenomenal quarter.
And to your point, we saw really strong demand.
In fact, we announced two large deals in the quarter.
We had a very large deal on our data center space that we announced with Oracle, which is in fact our largest ever AI infrastructure deal, and another large deal on AI inference.
So the portfolio is incredibly well positioned for the tailwinds that we're seeing in AI right now, Remy.
Yes, and I do want to expand on this.
I understand you're deploying HP Juniper networking across Oracle's data centers ahead of your upcoming networking investor day.
So how is this integration with Juniper transforming HP from a traditional hardware provider into a high margin networking powerhouse?
Yeah, I think as Antonio said yesterday, we're becoming increasingly an important player in the networking space.
And I think this deal that we've just announced with Oracle really underscores the importance of the position that we're really building in data center and the ability that our company has to really play in that AI space.
And I would say, Remy, I'll just put a plug in for Investor Day.
It's going to be here later in the month in September.
Stay tuned for that.
That's where we'll really sort of unpack a lot of our strategy around networking and, you know, really the incredible future that we see.
And I would add, actually, we raised our outlook on networking for 27, really underscored by the confidence that we see in deals like the one we just announced.
Yes, and Marie, while I have you here, I do want to ask you about what we're seeing in terms of HPE protecting profitability as well as gross margins.
So, a lot of server makers are seeing margins squeezed as they chase AI volume, especially when it comes to memory and chip supplies remaining tight.
So, can you walk us through how HPE is actually doing this all while ramping up production for gigawatt-scale systems?
Yeah, I'd have to say that in our cloud and AI segment this quarter, Remy, we actually posted one of the highest levels of profitability we've ever had.
So I would say we've been very judicious with our framework, which has really led around gross profit dollars.
And so we've been very intentional and focused on playing in the places where we can really drive profitability.
And that's really one of the core metrics that we chase in the company, Remy.
Yeah, and I do want to also dive into some of the numbers as well as some of the wins that you've had in the latest quarter.
So I understand your order bookings are at record levels and given that you are just coming off some of these wins for your free cash flow generation, tell us what you're paying attention to and what we should be watching out for as you head into fiscal 2027.
Yeah, absolutely.
So as you said, orders were up 35% on our networking business and more than 75% on our cloud and AI business, which gave us incredible confidence to raise the cash flow for this year to above $3.75.
And most importantly, we raised our cash flow to next year to at least $5 billion.
These are the highest cash flow numbers our companies ever had.
And what I'm watching for as a CFO is the durability of those earnings, which we underscored yesterday.
And at the end of the day, it all resonates in cash flow, Remy.
So we just need to continue posting those kinds of numbers and really driving towards those cash flow metrics.
And I think we have an incredibly strong story.
I'm super excited about the market we're in and the business we're in.
I think it's the right time for the right portfolio with the AI tailwinds that we're seeing out there today, Remy.
Yeah, and it goes without saying that investors are focused on artificial intelligence and HPE stock has had an incredible run this year as Wall Street does reward AI progress at the organization.
But as investors prepare for your investor day and also look ahead to 2027, tell us what part of HPE's long-term growth story that you feel is still underappreciated by the broader market.
Yeah, I'd say the piece that I'm personally really excited about is the future of on-prem infrastructure.
And I'll give you an example.
Here at HPE, we're really driving our own internal enterprise AI adoption.
And what we're doing is we're actually building our own on-prem AI factory.
And by doing that ourselves, using our own architecture and infrastructure, and I like to say, frankly, drinking our own champagne, we expect to save about 60% of token costs because we're using our own infrastructure to run our AI models on here in the company.
And I believe that as we sort of look to the future, a lot of CFOs, just like myself, Remy, are going to be really focused on token management and token economics, as we call it.
So with those kind of numbers, I think we have a massive opportunity in this space.
Yes, and Marie, while I have you here, you mentioned something that all of us are indeed paying attention to, and that is tokens and tokenomics.
So give us a sense of where you stand at HPE when it comes to this.
Yes, and Marie, while I have you here, you mentioned something that all of us are indeed paying attention to, and that is tokens and tokenomics.
So give us a sense of where you stand at HPE when it comes to this.
Yeah, look, I like to think that we're incredibly well positioned to benefit from, you know, CFOs and CEOs and boardrooms that are trying to really figure out how best to manage token costs.
And one way to do that is actually taking your infrastructure back on-prem and being able to better manage your models utilizing both the cloud and your on-prem infrastructure for the different workloads that you might be managing inside your company.
And for me as a CFO, we actually released our own platform recently, Remy, and we're running it all on what we call private cloud AI architecture so that we can basically utilize this platform anytime, any day, anyhow inside the organization.
And I don't have to be worried about the expense structure we're driving.
And finally, Marie, before I let you go, we all know when it comes to the big picture, there are a lot of headwinds in addition to some of the tailwinds out there.
So for viewers out there, what would you like them to know when it comes to HPE?
Look, I think that we are a company that's positioned with the right portfolio at the right time with the tailwinds that we're seeing with AI.
Whether it's in the networking space, in the server or the storage, We're right in the heart of the data center where we're seeing these AI tailwinds really provide incredible momentum for the business, Remy.
Well, Maria, it was a pleasure speaking to you.
Thank you so much for joining us this morning, and thank you so much for sharing all of your insights as well as your perspective following your earnings call.
Thanks so much for the time.
It was a pleasure to be with you today.
