‘By the end of the decade much of the infrastructure that will be consumed will be AI inferencing,’ said HPE CEO Antonio Neri. ‘That’s a position of strength for us and the partners because generally speaking when you run that infrastructure as an enterprise customer on prem you reduce the cost per token upwards of 60 percent.’
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HPE CEO Antonio Neri told CRN that accelerated agentic AI and AI inferencing in the enterprise market is “opening up” the booming AI market opportunity in traditional servers, storage and networking for partners.
“This is good for partners because where the demand is accelerating is where the strength of the partners is which is traditional infrastructure: storage, servers, networking versus training (of large language models) which is large infrastructure,” said Neri in an interview with CRN after HPE reported cloud and AI revenue up 25 percent to $9 billion in its third fiscal quarter ended July 31. “That (large infrastructure) will continue obviously but by the end of the decade much of the infrastructure that will be consumed will be AI inferencing. That’s a position of strength for us and the partners because generally speaking when you run that infrastructure as an enterprise customer on prem you reduce the cost per token upwards of 60 percent.”
Neri said HPE partners are well suited to deliver the “right cost-effective” infrastructure to capture the growing agentic AI and AI inferencing opportunity. “Up to now it was a much more limited (opportunity for partners),” said Neri. “Now it is opening up and we should expect that to continue.”
Neri’s no-holds-barred advice to partners: “Get aggressive! This is the time to scale AI deployment and inferencing with our customers!”
Neri’s clarion call to partners came as HPE AI system orders of $2.4 billion increased more than 30 percent sequentially with the HPE AI systems backlog up 14 percent sequentially to a new record high. In addition, HPE’s AI sales pipeline is several times larger than its backlog.
HPE AI system revenue in the quarter totaled nearly $1.6 billion with enterprise AI infrastructure demand more than doubling during that period.
“The enterprise clearly has hit an inflection point and that inflection point is driven by the deployment of agentic AI and AI inferencing,” said Neri during the call with analysts. “We see that ourselves. We have more than 1,200 use cases in our company, 300 plus in production.”
Neri said the buildout of enterprise agentic AI and AI inferencing favors HPE’s traditional server and storage business and its HPE private cloud stack.
Those enterprise customers “don’t need a huge amount of GPUs or even CPUs,” said Neri, but rather a “tight” infrastructure that effectively “brokers the cost” of tokens. “The number of tokens on premise is growing very, very rapidly,” he said. “That informs us on the durability of this (AI) demand. We see that in our pipeline.”
One sign of the growing enterprise agentic AI demand with the attractive economics versus public cloud: a multibillion-dollar HPE server deal after the quarter ended with a hyperscaler provider planning to use the servers for their own AI inferencing needs.
“We see enterprises increasingly moving from AI pilots to production deployments using traditional servers for agentic AI workloads and inferencing,” said HPE Executive Vice President and CFO Marie Myers during the conference call.
Myers pointed to a large retail customer deploying on-prem agentic AI workloads to lower public cloud AI token costs.
Myers’ comments came as HPE reported record results across all financial metrics including revenue, gross margin, operating profit and non-GAAP earnings per share. The results, HPE said, point to AI as a “multi-year growth driver, expanding demand across the HPE portfolio.
That expanding demand resulted in server revenue up 35.3 percent in the quarter to $6.8 billion compared with $5 billion in the year ago quarter. What’s more, HPE traditional server orders were up 75 percent from the year ago quarter.
HPE’s storage business revenue was up 10.2 percent to $1.3 billion compared with $1.17 billion in the year-ago quarter. HPE storage orders grew at a rate twice as fast.
HPE networking revenue of $2.9 billion was up 10 percent on a normalized basis in line with expectations. HPE networking orders, however, were up 36 percent, about three-and-a-half times faster than revenue.
“Order growth was broad based across the (networking) portfolio led by AI infrastructure-related investments in data center switching and routing and strong demand for self-driving networks in campus and branch,” said Myers. “Networks for AI demand accelerated in Q3 with orders reaching a new high of $700 million, up triple-digits.”
Cumulative networks for AI orders were $2.2 billion, surpassing HPE’s Fiscal Year 2026 target. As a result, HPE has increased that networking forecast to $2.5 to $3 billion, more than doubling its networking purchase commitments quarter over quarter.
Overall, HPE reported better-than-expected results with diluted non-GAAP earnings per share of $1.11 on a 34 percent increase in sales to $12.2 billion. That compares with non-GAAP diluted earnings per share of 67 cents per share on sales of $9.1 billion in the year-ago quarter.
The results were above the Zacks consensus estimate of 94 cents per share on revenue of $12.1 billion.
As a result of the strong third-quarter results, HPE is raising its guidance for the fourth quarter, Fiscal Year 2026 and Fiscal Year 2027.
For Fiscal Year 2026, HPE now expects revenue growth of 34 to 37 percent compared with 29 to 33 percent with non-GAAP earnings per share of $3.75 to $3.85 compared with $3.35 to $3.45.
Furthermore, HPE said it expects revenue growth of 13 to 17 percent in Fiscal Year 2027 with Non-GAAP earnings per share growth of 16 to 20 percent compared with 12 to 16 percent.
“What has limited us is the availability of supply,” said Neri. “We expect that supply to become more aligned with our order bookings as we go forward.”
Neri said HPE is working with suppliers to increase availability even as he expects orders to remain ahead of revenue. “We expect that to kind of close a little bit as we go forward,” he said. “We expect an acceleration of revenue as we go forward but supply will continue to be a constraint.”
Bob Panos, president of American Digital, Schaumburg, Ill., a top HPE partner, said he is seeing an increasing HPE AI enterprise on-premise sales pipeline with what he called the best HPE product portfolio that he has ever seen
“We’re seeing companies in regulated industries including financial firms that want to protect their data looking for on-premise AI solutions,” he said. “Security is also a big issue for these customers. We are positioning our customers to use AI in the enterprise.”
In fact, American Digital recently closed a blockbuster deal with an enterprise customer that was comparing the HPE solution to a public cloud solution with HPE Morpheus hybrid cloud management and virtualization software as a critical differentiator. “The customer saw the value in the HPE solution,” he said.
Panos said he expects to see the strongest percentage sales growth with the HPE Juniper networking portfolio. “HPE and American Digital were never strong in the enterprise data center business, but they are now!” he said.
Neri, for his part, said HPE is “leading with networking” and at its core becoming a networking company. “The runway ahead of us is enormous,” he said.
