Good morning. A $1.2 billion order from cloud provider Vultr gives Hewlett Packard Enterprise an early commercial win for its new AMD AI system and tests whether AI networking can become a faster-growing, higher-margin business.
The order, announced Wednesday as HPE’s Networking Investor Day took place, is the company’s first for the AMD Helios platform and includes HPE Networking scale-up switching and software. HPE raised its fiscal 2027 networking revenue-growth outlook to the high-teens to low-20% range, from 14% to 17%. Shares closed about 4% higher.
The question is whether HPE can turn AI-infrastructure demand into durable revenue growth and margin expansion following its Juniper Networks acquisition. The immediate test is converting orders into shipments, revenue, and cash flow.
Rami Rahim, HPE’s executive vice president, president and general manager of networking, said at the event that orders grew 3.5 times faster than revenue in the third quarter, suggesting that supply availability, rather than demand, was constraining sales. HPE doubled its networking supply-purchase commitments in the latest quarter to secure capacity and convert backlog into revenue. For the Vultr order, HPE has not disclosed the $1.2 billion split among networking, compute, software, services and other components.
“Based on continued strength and demand, we now expect our fiscal 2026 networks for AI cumulative orders to exceed $3 billion,” Rahim said. That exceeds HPE’s prior $2.5 billion to $3 billion estimate, communicated by CEO Antonio Neri and CFO Marie Myers on the third-quarter earnings call, he said.
HPE reported on Sept. 2 record fiscal Q3 2026 networking revenue of $2.9 billion, up 74.9% year over year. “We expect networks for AI to be a meaningful growth engine for the company,” Myers said on the earnings call. “Demand is continuing to outpace supply,” she told Yahoo Finance on Wednesday. Myers added, “The tailwinds that we see around AI aren’t changing anytime soon.”
HPE (No. 133 on the Fortune 500) expects integration and transformation synergies and operating leverage to lift networking operating margins to the mid- to high-20% range in fiscal 2027, from the low-20% range expected in fiscal 2026. It projects a high-teens networking revenue CAGR through fiscal 2029, with margins remaining in that range.
The Vultr order is an early proof point for HPE’s Helios strategy, but execution will determine the payoff.
Sheryl Estrada
Sheryl.Estrada@fortune.com
This story was originally featured on Fortune.com
