HPE’s Outlook Disappoints — AI Chip Costs Weigh on Margins, Shares Drop Nearly 9% After Hours

TradingKey - On Wednesday (local time), Hewlett Packard Enterprise (HPE.US) issued its financial outlook for the new fiscal year that fell short of market expectations, citing high costs from AI servers and integration expenses. Following the announcement, HPE shares dropped nearly 9% in after-hours trading.

[Source: Google Finance]

The company projected adjusted earnings per share (EPS) of $2.20 to $2.40 for the fiscal year ending October 2026, with free cash flow estimated between $1.5 billion and $2.0 billion — both figures below consensus forecasts of $2.41 for EPS and $2.41 billion for free cash flow.

Market analysts say soaring costs for advanced AI chips are eroding profit margins and have become the primary factor weighing on HPE’s financial guidance.

In recent years, HPE has made a major strategic push into artificial intelligence and high-performance computing, aiming to redefine its growth trajectory. CEO Antonio Neri stated the company is “accelerating share gains in the markets most critical to our customers” and will continue expanding its networking business footprint.

In July, HPE completed its $13 billion acquisition of Juniper Networks, aiming to strengthen its AI infrastructure strategy through enhanced networking capabilities.

However, the stock reaction suggests investors are focused on near-term headwinds. The use of expensive AI chips in its server lineup is pressuring margins, while weaker-than-expected cash flow guidance has further dampened sentiment.

In its statement, HPE emphasized that over the next few years, it will prioritize improving earnings quality and cash generation to deliver stronger returns to shareholders.