HPE Stock Jumps 22% on AI Server Boom: Time to Buy?

Hewlett Packard Enterprise (HPE) stock surged 22.3% in September 2026, driven by a blowout earnings report and a major AI server order. On September 2, HPE reported fiscal third-quarter revenue of $12.2 billion, up 34% year over year and beating the $11.93 billion consensus. Earnings per share came in at $1.11, $0.19 above estimates, and management raised guidance for fiscal 2026 and 2027. The fourth-quarter revenue forecast of $13.9 billion to $14.8 billion also topped analyst expectations of $13.0 billion.

AI demand was the key catalyst. AI systems orders jumped more than 30% sequentially to $2.4 billion, and the AI systems backlog reached a record high. Networking orders rose 36%, including a record $700 million in AI networking orders. HPE also announced an expanded deal to supply routers and switches for a gigawatt-scale Oracle AI cloud build-out, plus a multibillion-dollar AI inferencing server contract with an unnamed hyperscaler.

Mid-month, the stock gave back some gains as AI stocks broadly paused, and CEO Antonio Neri sold 250,000 shares worth about $15 million on September 11. However, HPE recovered and ended the month strong. On September 30, HPE announced a $1.2 billion order from cloud provider Vultr for AMD Helios AI racks built by HPE. This is the first order for the system, which combines AMD graphics processors with HPE networking gear. Notably, HPE's fiscal 2027 framework issued on September 2 excluded Helios, so this order represents potential upside.

Management also raised its networking revenue guidance, citing stronger synergies from the $14 billion Juniper buyout. Despite the stock nearly tripling in 2026 (up 188.6% year to date as of October 2), HPE trades at about 14.8 times forward earnings estimates, which is not a bubble-level valuation for a company guiding toward fiscal 2027 free cash flow of at least $5 billion. However, management expects gross margins to drift back toward historical levels as lower-margin AI systems take up more of the sales mix, and the memory shortage remains a headwind.

HPE's transformation into a serious AI infrastructure supplier is a game-changer for the company and its investors. The record AI systems backlog and major contracts with Oracle and Vultr demonstrate that HPE is winning business in the rapidly growing AI data center market. This is critical because AI infrastructure spending is expected to remain robust, and HPE's ability to secure these deals positions it for sustained revenue growth.

The earnings beat and raised guidance show that HPE's strategy is paying off. The company's networking segment, bolstered by the Juniper acquisition, is also benefiting from AI demand, with record AI networking orders. This diversification beyond traditional hardware is essential for long-term growth and margin expansion.

However, the margin outlook is a concern. As AI systems, which carry lower margins, become a larger part of the sales mix, gross margins are expected to decline. Additionally, the memory shortage could pressure costs. Investors need to weigh the revenue growth potential against these margin headwinds.

Valuation-wise, HPE's forward P/E of 14.8 is relatively attractive, especially considering its strong free cash flow guidance. If HPE can continue to execute on AI orders and manage margins effectively, the stock could still have room to run. But the competitive landscape is fierce, with rivals like Dell and Super Micro Computer also vying for AI server market share.

The Vultr order for AMD Helios racks is particularly noteworthy because it validates HPE's partnership with AMD and opens up a new revenue stream that was not included in previous guidance. This could lead to further upside if more orders materialize. Overall, HPE's September performance highlights its growing role in the AI ecosystem, but investors should monitor margin trends and execution risks.