September 3, 2026
A record $12.2 billion quarter, 18-cent EPS beat, raised guidance.
Hey there, bargain hunter. Hewlett Packard Enterprise dropped a quarter Wednesday night that would make most enterprise hardware CEOs weep with joy, and the market promptly knocked the stock down about 4%. By Thursday morning it was recovering. That gap between what the numbers say and what the stock did is exactly where this publication lives.
Jon Najarian’s Shocking “Beyond SpaceX” Prediction
For 16 years, Jon Najarian was a fixture on CNBC’s Fast Money – known as the man in the red beret.
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A shocking prediction about what comes “Beyond SpaceX.”
Scoreboard
Revenue came in at $12.2 billion, up 34% year over year, above the high end of guidance. Non-GAAP EPS was $1.11, beating the consensus of 93 cents by 18 cents. It was the first time HPE topped $1 in a single quarter. Free cash flow hit $958 million, driven by strong operating profit and collections. Non-GAAP gross margin reached a record 40.4%, up 1,050 basis points year over year, and non-GAAP operating profit hit $2.0 billion.
For Q4, HPE guided revenue of $13.9 billion to $14.8 billion and raised full-year EPS guidance to $3.75 to $3.85. The updated fiscal 2027 framework calls for 13% to 17% revenue growth.
Why the Stock Fell Anyway
Shares were down roughly 4% in pre-market trading as analysts flagged a slight moderation of margins, with investors wary of projected deceleration in Cloud and AI revenue growth and margin normalization due to a higher AI-systems mix. The suspicion is straightforward: the company expects gross margins to moderate toward more historical levels, driven by growth in AI systems and normalization in traditional server and services. Supply constraints in memory and components also limit order conversion, and management flagged Q4 margin pressure from AI product mix shift and pricing dynamics.
Huge AI Announcement Coming on September 3
The last time this firm did this, it skyrocketed overnight. Now – backed by a $51 billion backlog, a SpaceX partnership, and President Trump’s ringing endorsement – the gains could be even bigger.
In short, the market is asking whether 40% gross margin is a ceiling or a peak.
The Business and How It Makes Money
HPE runs two main engines. Cloud and AI generated $9.0 billion in revenue, up 25% year over year, with server revenue up 35% to an all-time high. Networking contributed $2.9 billion, up 10% on a normalized basis. Networking is the higher-margin engine: networking operating margin ran at 22%, while Cloud and AI operating margin reached 17%, up 460 basis points sequentially.
Orders grew 36% year over year, driven by significant demand for inferencing and agentic AI workloads, with backlog at a record. CEO Antonio Neri explained that order momentum is running 3.5 times faster than revenue growth, with supply availability being the primary constraint. That is a backlog problem, not a demand problem.
Understanding why that backlog exists requires looking at the broader capital allocation picture driving AI infrastructure spending. Tariff policy on chips and server components is quietly reshaping how hyperscalers and OEMs plan their build schedules — a dynamic that feeds directly into HPE’s supply constraints. how allocators are pricing the AI infrastructure buildout amid chip tariff uncertainty lays out why the data center carve-out is the single variable that could accelerate or stall backlog conversion across the server supply chain.
Is It Cheap?
At roughly $49-52 on Thursday, HPE trades at about 13 times the midpoint of its raised FY26 EPS guidance of $3.80. The average 12-month analyst price target sits at $67.18, with 15 analysts recommending a buy and zero recommending a sell. Against peers: SMCI traded around the mid-teens P/E range in early August. On a forward basis, HPE is the cheapest way to own this AI server cycle with a clean balance sheet and a dividend.
That SMCI comparison deserves more than a passing reference, because the two companies are competing for the same AI server orders with very different balance sheet profiles. SMCI’s recent guidance raised its revenue target to $72 billion, but the cash flow picture behind that number raises questions that HPE’s cleaner financials do not. SMCI’s $72B guidance and the cash flow hole investors should examine provides the detail needed to put HPE’s 13-times forward multiple in proper competitive context.
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Bull / Base / Bear
- Bull: Orders growth converts into consistent revenue and free cash flow through fiscal 2027 as supply constraints ease. Networking margins hold in the low-20% range, and the Oracle partnership delivers incremental revenue.
- Base: Fiscal 2027 revenue grows 13% to 17%, EPS reaches the $4.40 to $4.60 range, and free cash flow clears $5 billion. The stock re-rates modestly higher as execution confirms the raised framework.
- Bear: Gross margins moderate toward historical levels faster than revenue scales, networking organic growth stays in the low single digits, and the AI infrastructure cycle peaks before backlog fully converts.
Action Plan
The after-hours drop is not a business event. It is a valuation reset on margin uncertainty, which is a different and more manageable problem. At 13 times forward earnings with a record backlog, the risk-reward favors building a position in two tranches: a starter position now, and a second add if shares revisit the $47 to $48 range on continued margin anxiety.
Watch the Q4 gross margin result before sizing up aggressively. The company has flagged that operating margins will decline sequentially in Q4 due to a higher mix of AI systems. If the actual decline is shallower than feared, the stock will move fast.
Cheap Investor Scorecard
- Q4 non-GAAP gross margin: holds above 38% (bullish) or falls below 37% (bearish)
- Backlog conversion rate: orders-to-revenue gap narrows in Q4
- Networking organic growth: does it accelerate toward the guided 11% to 13% in Q4?
- Networks for AI cumulative orders: track progress toward the $2.5 billion to $3.0 billion target by end of FY26
- FY27 EPS path: first analyst revisions above or below the $4.40 to $4.60 midpoint
- Supply constraints: memory and component availability improving quarter over quarter
- Oracle and hyperscaler deal revenue: when does it show up in the Cloud and AI line?
That question becomes sharper when you consider what Oracle itself is navigating right now. The company recently signed a landmark deal with its biggest cloud rival while carrying a $638 billion backlog and a stock that has sold off sharply — a combination that creates both urgency and uncertainty around how quickly joint revenue flows to partners like HPE. Oracle’s AWS partnership, its $638B backlog, and why the stock is still down 59% gives the context needed to judge whether the HPE-Oracle revenue line is a near-term catalyst or a longer-dated option.
Bottom Line
If HPE’s 40% gross margin holds within two points through Q4, this is simply the market being nervous after a big year-to-date run. If margins collapse into the mid-30s, the concern is legitimate and you want less exposure. The data right now, including a record backlog, 36% order growth, and the company’s fiscal 2027 growth framework, argues for the former. A record quarter at 13 times earnings is a bargain hunter’s kind of dip.
