Friday mornings in the tech sector can feel like a rollercoaster, and yesterday was no exception for anyone holding Hewlett Packard Enterprise stock.
I was grabbing my usual coffee when the notification hit: HPE down almost 10% pre-market. One quick glance at the headline and it was clear – the company had missed revenue expectations for its fiscal fourth quarter, and the server business, long considered the beating heart of the operation, took a noticeable step back. Sometimes the market punishes imperfection brutally, even when the longer story still looks reasonably bright.
What Actually Happened in Q4
Let’s get the numbers out of the way first, because they tell both a disappointing and strangely encouraging story at the same time.
Hewlett Packard Enterprise closed its fiscal year with $9.68 billion in revenue. That’s actually up a healthy 14% from the same quarter last year – which sounds great until you realize Wall Street was looking for closer to $9.94 billion. In this game, beating last year isn’t enough if you miss the consensus forecast by a couple hundred million.
The real spotlight, though, fell on the server segment. Revenue there clocked in at $4.46 billion, down 5% year-over-year and a painful 10% from the previous quarter. Analysts had been hoping for something closer to $4.58 billion. Ouch.
“Despite these headwinds, we were encouraged by robust server order growth across both traditional server and AI offerings, with demand significantly outpacing revenue in this period.”
– Marie Myers, CFO
That single sentence from the earnings call probably kept a lot of long-term investors from completely panicking. Yes, revenue was soft, but orders – the pipeline for future quarters – apparently looked strong. Classic “good news buried in bad news” situation.
Why the Server Numbers Looked So Weak
Management pointed to two main culprits.
- First, timing issues with AI-related shipments. Some large AI server orders simply didn’t ship in the quarter they were originally expected.
- Second, government spending came in lighter than anticipated – always a wildcard in enterprise hardware.
If you’ve followed enterprise tech for any length of time, neither explanation is particularly shocking. Big AI clusters don’t get racked and stacked overnight. Customers finalize designs, procurement gets approvals, data center space gets prepared – the whole process can slip a quarter without anyone necessarily doing anything wrong.
Government budgets are even more unpredictable. End-of-fiscal-year spending sprees can vanish if Congress gets stuck in continuing-resolution limbo, which, let’s be honest, feels like the default setting these days.
The AI Story Is Still Very Much Alive
Here’s where things get interesting.
Even with the sequential drop, HPE continues to talk a confident game on AI servers. The company has been positioning itself as a major player in the “AI factory” build-out, partnering closely with Nvidia and pushing its GreenLake private-cloud offering hard.
In my experience, when management repeatedly emphasizes order strength during a revenue miss, they’re usually telling you the current quarter is an air pocket rather than a trend change. Whether investors choose to believe them is another question entirely.
Perhaps the most telling detail: traditional server demand apparently held up better than many feared, while the AI side is the piece experiencing growing pains. That’s almost the opposite script from what some bears have been predicting.
How the Market Reacted – And Why 9% Feels Harsh
By midday Friday, HPE shares were still down around 9%, pushing the stock below $18. That wipes out most of the gains from the post-election rally and leaves the name trading at roughly the same level it sat at back in early 2024.
Is the punishment fitting the crime? Honestly, I’m not sure.
On one hand, missing revenue in what was supposed to be a seasonally strong quarter stings, especially when your peer group (think Dell) has been posting monster AI-server numbers. On the other hand, HPE beat on earnings per share rather comfortably – 62 cents versus 58 cents expected – and the balance sheet remains rock solid.
The market seems to be pricing in a scenario where AI server momentum stalls. Yet the company is saying the exact opposite: backlog is growing, just not converting to revenue as quickly as models assumed.
What History Tells Us About These Moments
I went back and looked at previous quarters where HPE missed revenue but talked up order strength. The pattern is actually fairly consistent: the stock takes a beating for a few weeks, then gradually recovers as the next quarter’s numbers start validating management’s commentary.
Of course, past performance is no guarantee, etc. But it does suggest the current sell-off could be overdone if the order story holds water.
The Bigger Picture for Enterprise Tech
Zoom out, and HPE’s results feel like a microcosm of where we are in the AI build-out cycle.
Phase one was hyperscalers buying every GPU they could get their hands on. Phase two is enterprises figuring out how to deploy AI at scale in their own data centers – a slower, lumpier, more procurement-heavy process.
HPE lives squarely in phase two. That means volatility is basically baked in.
Add in the usual enterprise budget cycles, potential tariff noise, and macro uncertainty, and you get an environment where even solid companies can miss a quarter and watch their stock get crushed.
What I’m Watching Next
- How quickly those AI server orders start converting to revenue in Q1 and Q2
- Whether traditional server demand stabilizes or continues softening
- Margin trajectory – gross margins actually expanded slightly despite the top-line miss, which is encouraging
- Guidance for the new fiscal year (management was characteristically cautious)
If the company can deliver even in-line results next quarter and show sequential server growth, this dip will look like classic noise in a longer uptrend.
If the conversion lag persists for multiple quarters, then the bears might have a real point.
For now, I’m staying on the sidelines but keeping HPE on a very short watchlist. Sometimes the best opportunities come disguised as disappointing headlines.
Either way, yesterday reminded us once again that in tech investing, patience is usually rewarded – eventually.
