(Bloomberg) — Shares of Hewlett Packard Enterprise Co. surged 16% to a record high after the company reported better-than-expected revenue from sales of servers built for artificial intelligence work.
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Fiscal second-quarter revenue rose 3.3% to $7.2 billion, the company said in a statement Tuesday. Wall Street had forecast a 2% year-on-year decline to $6.82 billion, according to data compiled by Bloomberg. Excluding certain items, profit was 42 cents a share in the period ended April 30. Analysts on average estimated 39 cents.
The strong performance was led by the company’s server business, which generated revenue of $3.87 billion. Analysts on average had forecast $3.45 billion. The company said sales of AI-oriented systems doubled from the first quarter to more than $900 million. Chief Executive Officer Antonio Neri said in an interview that sales of AI systems increased due to rising demand and better availability of high-power semiconductors from Nvidia Corp.
Shares rose as much as 16% to a high of $20.43 on Wednesday after closing at $17.60 in New York. That was the biggest intraday gain since March 2016 and the stock’s highest trading since HPE was spun off from personal computer-oriented HP Inc in 2015.
HPE shares were up just 3.7% as of Tuesday’s close, a modest rise compared with its competitors in the server sector, Dell Technologies Inc. and Super Micro Computer Inc., whose shares have gained 77% and 171%, respectively, over the same period.
“I think the market will start to become aware of this,” Neri said of HPE’s AI server business. “I think after today’s announcement, they will understand even more.”
HPE’s current backlog for AI systems is now $3.1 billion, Chief Financial Officer Mary Myers said in a conference call after the results were released. Dell said last week that its AI server backlog was $3.8 billion.
“This is the first quarter HPE has disclosed AI server revenue and investors will likely welcome the increased disclosure,” wrote Raymond James analyst Simon Leopold.
The company said sales would be $7.4 billion to $7.8 billion in the period ending in July. Analysts, on average, had forecast $7.45 billion. Excluding certain items, profit would be 43 cents to 48 cents a share, compared with estimates of 46 cents.
For the fiscal year, HPE raised its revenue outlook to a range of 1% to 3%, while the previous forecast had projected flat to 2% growth. The company said profit will be about $1.90 per share at the midpoint of its range, compared with the roughly $1.87 per share it forecast in February.
Bloomberg Intelligence analyst Woo Jin Ho wrote, “The AI-server ramp-up is finally materializing.” Still, he said the full-year forecast is disappointing given the growth in the AI business, which suggests other business areas such as networking are dragging down results.
HPE’s Intelligent Edge, which includes the networking business, reported second-quarter revenue of $1.09 billion, compared with the average estimate of $1.25 billion. In January, HPE agreed to buy Juniper Networks Inc. for $14 billion, which will boost its networking offering. Neri said he expects customer demand to improve as the year goes on.
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