HPE CEO: Market is realizing we 'have a big role to play in AI'

Shares of Hewlett Packard Enterprise (HPE) are soaring after reporting second quarter results that topped Street estimates and issuing better-than-expected Q3 and full-year guidance.

CEO Antonio Neri is not surprised by the reaction to the earnings, saying "the market is finally waking up to the idea that HPE has a big role to play in AI." Neri argues that "HPE is uniquely positioned to capture the AI inflection point that we see continue to drive the momentum in hybrid cloud."

Neri says HPE has an AI order book of $4.6 billion, adding that "in that number, we converted more than $900 million in revenues. But what is important to realize is that that revenue had solid gross margins, operating margins."

AI systems use a lot of energy. On that front, Neri says energy supply is still "constrained." That's why he says HPE is "unique" because it offers "100% direct liquid cooling," which is more energy efficient.

Watch the video above to hear why Neri says Nvidia (NVDA) and its CEO, Jensen Huang, are "changing the world."

For more expert insight and the latest market action, click here to watch this full episode of Market Domination.

This post was written by Stephanie Mikulich.

Video Transcript

One of the hottest stocks in the market today.

Our shares of H PE after a much better than expected quarter and a pretty upbeat outlook amid all things a I Let's get right to H PE CEO Antonio Neri Antonio always great to get some time.

You and boy uh, we were sitting here three months ago.

This was a different story.

We're talking about some delayed orders, maybe things slowing down a little bit, But I didn't get that vibe.

Uh, on this quarter, What in the world happened here?

Well, Brian, uh, thanks for having me today.

Uh, actually, we have been a consistent story.

I think the market is finally waking up to the idea that HP has a big role to play in a I And I'm very pleased on the fact that we continue to execute the strategy and delivering the results.

We did like in Q two, where you see that we beat revenues and non gap earnings per share on the back of the, uh the, uh a I system revenue conversion, which more than doubled from Q one now exceeding $900 million for the quarter.

So HP is uniquely positioned to capture the A I inflexion point that we see continue to drive the momentum hybrid cloud.

And obviously, the networking piece of this is super important as the market in that particular segment recovers.

But today is an A I story, no question.

And, uh, as we think about the market evolution, we continue to see very strong demand.

We continue to see that demand accelerating and what I'm really pleased about the demand is now that more than 15% of our cumulative orders now represent enterprise A. I you've always been good in in sharing, uh, how much?

In terms of dollar value in orders of a I related, uh, products and services you have.

What's the number now?

Because you have been very consistent with us.

Every quarter we talk to you, Antonio.

That number has gone up pretty significantly.

Yeah, we execute two with a cumulative A I order book of $4.6 billion.

In that number, we converted more than $900 million in revenues.

But what is important to realise is that that revenue had solid gross margins operative margins, and that's because we have been very prudent in managing our structure, being super disciplined about the deals we pursue where we see path to profitability, but most importantly, drive our portfolio of products and services without just focusing on the server itself.

And you can see in our disclosures, Brian, is that we start disclosing the services pull through, which is now getting bigger and bigger also because in many of these deals we actually not only ship the server but actually provide the full data centre infrastructure.

And actually, we run those assists on behalf of customers.

Last time we talked to Antonio, you really one of the first executives to bring up to me, at least in the in the tech space companies, having trouble implementing the A I stuff they are ordering because of of energy, they couldn't get enough energy into their various systems.

Where does that stand now?

We're still constrained, Brian.

We're still constrained, and as I think about the future right, we're gonna be constrained.

It's not just the space.

Obviously, there is a lot of new build outs that we see in the market in the US and but also in other geographies.

I think the sovereign clouds will have incremental demands on that data centre capacity.

And obviously we need more clean energy, more sustainable energy as we go forward.

And as you think about this, uh, silicon accelerated computer that's coming next.

As you saw in the road maps announced by NVIDIA, for example, they would require 100% directly with cooling.

That's a unique opportunity for H PE, because H PE is one of the only companies that can actually do all type of cooling air cool, which is the traditional way to do it today.

But that's not going to be sufficient when you exceed the 1000 watts per socket and the next generation is going to be close to 1700 watts.

Then you have what I call the hybrid, which is most of the companies do today.

There is a 70% liquid cool but also using funds to cool the environment.

NHP does both, but what HP is unique is the 100% direct liquid cooling, and we have done this for many customers and in fact, through three of the largest system we have deployed for generative A. I are today 100% direct liquid cooling, so it's a combination of space cooling and the technology used to cool this.

This cool down the systems with direct liquid cooling.

Yeah, it sounds like you got a lot of cool stuff working, Antonio.

Why?

Why were the margins down in your various segments and when did those start to improve?

Well, I think overall margins were now because of the mix of the business, right?

So obviously, as we know, the the networking market is going through a transition, and we have done a fantastic job over the last two years, adding $2 billion of revenue in our networking segment, which obviously comes with a different structural gross margin profile.

And as the market is going through, the, uh, what I call digestion of the inventories, By the way, we expect a modest demand improvement in networking as we go forward here, which is a positive news.

Obviously, that drives the entire company's margin.

But if you look at our server segment, we grew revenues 18% and we deliver 11% operating profit, which is in the ranges.

We guided the street between 11 and 13% so it's very, very positive since you worked so closely with NVIDIA Jensen for a while, I imagine.

How important is that company to the the A. I build out around the world because all we hear about media land is, uh maybe there's an a I bubble.

Uh, they can't get off chips out.

We see a MD doing chips.

But just from an NVIDIA perspective, like, how important are they?

I think they are changing the world with an amazing innovation, obviously, that the company and Jensen himself have been driving for more than two decades.

You know, when you hear him talking about it, right, it has taken him personally to two decades to get where we are today.

I think we're all a little bit surprised about the advancement of generative A i from the algorithm perspective.

But from the silicon perspective, I'm no surprise at all.

And so I think together with companies like us, we will change the world for better in my mind.

And HP has unique value to bring to the table through our expertise of decades.

You know, deploying a I, a scale to our services organisation to the ability to build this system.

Brian So HP today is one of the largest companies that has the water, cool, uh, infrastructure to build the system.

It's not just cooling the systems, but to build the systems.

You need a lot of water capacity and power to build that.

NHP has one of the largest footprint, so Jensen understands that, but ultimately how we engineer solutions in a way that is easy to deploy.

This is going to come down to the experience, not just the system performance and the sustainability of the systems and the return on investor capital.

But it's going to be that experience and enterprises need a simplified experience to deploy this amazing technology, which is going to change the world forever.

Pretty amazing.

Time to Be in Tech Well, good session for shares of HP After a better than expected quarter and relatively upbeat Alec Antonio NRI, we'll talk to you soon.

Thank you, Brian