HPE Delivers Record Q2 FY26 Revenue of $10.7B, Raises Full-Year Outlook

Hewlett Packard Enterprise reported record second-quarter fiscal 2026 revenue of $10.7 billion, up 40% year-over-year, driven by strong demand for AI infrastructure, enterprise networking, and data center modernization. The results exceeded company guidance on both revenue and earnings, prompting HPE to raise its fiscal 2026 outlook and introduce a fiscal 2027 growth framework. The company said its performance now places it approximately two years ahead of the financial targets it outlined during its October 2025 Analyst Meeting.

Networking emerged as the standout growth engine following the integration of Juniper Networks. Networking revenue surged 148% year-over-year to $2.7 billion, including 233% growth in Data Center Networking revenue to $320 million and 155% growth in Security revenue to $273 million. Routing revenue reached $775 million, compared to just $1 million in the prior-year quarter before the Juniper acquisition. HPE also reported strong momentum in its Cloud & AI segment, where revenue increased 22.9% to $7.7 billion. Server revenue climbed 32.7% to $5.5 billion as enterprises and service providers continued investing in AI infrastructure deployments.

Profitability improved significantly across the company. GAAP gross margin reached 36.5%, while non-GAAP gross margin rose to 36.9%. Non-GAAP diluted EPS reached a record $0.79, up from $0.38 a year earlier and well above guidance. Free cash flow totaled $900 million, representing HPE’s highest-ever second-quarter free cash flow performance. The company also completed the sale of its remaining 19% stake in H3C on May 28, generating approximately $1.357 billion in cash proceeds.

• Revenue: $10.7 billion, up 40% year-over-year
• GAAP gross margin: 36.5%
• Non-GAAP gross margin: 36.9%
• GAAP diluted EPS: $0.44
• Non-GAAP diluted EPS: $0.79
• Cash flow from operations: $1.4 billion
• Free cash flow: $900 million
• Capital returned to shareholders: $343 million

Segment Performance:

• Networking revenue: $2.7 billion (+148.2%)
  • Campus & Branch: $1.3 billion (+50.2%)
  • Data Center Networking: $320 million (+233.3%)
  • Security: $273 million (+155.1%)
  • Routing: $775 million
• Cloud & AI revenue: $7.7 billion (+22.9%)
  • Servers: $5.5 billion (+32.7%)
  • Storage: $1.2 billion (+2.4%)
  • Financial Services: $900 million (+5.6%)

Updated Fiscal 2026 Outlook:

• Revenue growth: 29%–33%
• Networking revenue growth: 72%–75%
• Non-GAAP diluted EPS: $3.35–$3.45
• Free cash flow: At least $3.5 billion

Fiscal 2027 Framework:

• Revenue growth: 8%–12%
• Non-GAAP EPS growth: 12%–16%
• Non-GAAP operating margin: 12%–16%
• Free cash flow: At least $4.5 billion

“Customers continue to invest in modernizing their infrastructure and scaling AI, and our performance shows the strength of our combined networking portfolio and the value we are delivering to our shareholders,” said Antonio Neri, president and CEO of HPE.

Investor Call Addendum

• HPE said demand visibility improved because its pipeline remains “multiples” of current backlog, with no evidence of customer pull-ins or double ordering.
• Supply availability, not demand, remains the primary gating factor for revenue conversion in both Networking and Cloud & AI.
• HPE said it has secured long-term supply agreements for 2027, but does not expect component availability or elevated commodity costs to normalize quickly.
• Management pointed to AI inference as a key driver of future demand, including deployments that use both GPUs and CPUs.
• Enterprise and sovereign AI deployments are becoming a more important part of HPE’s AI systems mix, which management characterized as typically more profitable than large model-builder or service-provider deals.
• HPE expects Networks for AI orders to reach at least $2 billion by the end of fiscal 2026.
• HPE said its networking opportunity spans “scale up, scale out, and scale across,” including AMD Helios rack-scale architecture, Tomahawk 6-based switching, QFX fabrics, and PTX platforms for data center interconnect.
• HPE plans to introduce a scale-up Ethernet switch and software for AMD Helios in the fall.
• Management said cross-portfolio sales across server, storage, and networking remain early but are already helping HPE pursue larger enterprise deals.
• HPE is integrating Juniper Apstra with Morpheus and VM Essentials to support a unified control plane across servers, storage, and networking.
• HPE said GenAI-enabled process simplification now accounts for nearly 20% of fiscal 2026 Catalyst initiative savings.
• The company expects to reach its 2x net leverage target by the end of fiscal 2026, one year earlier than planned, then return at least 75% of free cash flow to shareholders through dividends and repurchase

🌐 Analysis: HPE’s quarter highlights the strategic impact of the Juniper Networks acquisition, which has transformed networking into one of the company’s fastest-growing and most profitable businesses. The combination gives HPE a broader portfolio spanning campus networking, routing, data center fabrics, and security, positioning it to compete more directly against networking leaders such as Cisco Systems and Arista Networks in AI-era infrastructure deployments.

🌐 Analysis: The results also underscore the continued strength of AI infrastructure spending. While many vendors have reported robust AI server demand, HPE’s accelerating Data Center Networking growth suggests enterprises and cloud providers are increasingly investing in the networking fabric required to interconnect large-scale AI clusters. The combination of AI servers, networking, storage, and hybrid cloud services positions HPE as one of the more diversified beneficiaries of the ongoing AI infrastructure buildout.