Is 2025 Going To Be A Breakout Year For HPE? Everything Currently Says Yes!

HPE in its various incarnations has been a stalwart of Silicon Valley and the wider tech sector for decades, with the company having a storied history over that time.  I worked for the company between 2000 and 2010 and was always impressed with the innovation and re-invention.  To give you a trip back in history - Hewlett-Packard (HP) was founded in 1939 and became a technology pioneer in computing, printing, and instrumentation. In 1999, HP spun off its test and measurement division to form Agilent Technologies, focusing on scientific instruments and lab equipment. In 2015, HP split again into two companies: Hewlett Packard Enterprise (HPE), focusing on enterprise IT solutions, and HP Inc., which retained the printing and personal computing businesses.  One final point to note is that HPE has its end of year at the end of October because one of the original founders' wives didn’t want the year end to clash with the Christmas holiday. This explains the FY close at the end of October.

Why the history lesson? 2025 is shaping up to be another year of re-invention for the company with the closure of the Juniper deal and the tailwinds of AI. Before we get to the prospects for 2025 lets not get ahead of ourselves.  HPE delivered an impressive Q4 2024, with strong contributions from AI systems, hybrid cloud, and record-breaking free cash flow. These results underscore the company’s ability to align with the surging demand for AI infrastructure and hybrid cloud solutions, under the stewardship of Antonio Neri, while maintaining operational discipline.  

The standout story from this quarter was HPE’s $1.5 billion in AI systems revenue, reflecting sequential growth of 16%. I recently attended the company’s AI Investor Day, and while a factory tour in of itself was not revolutionary I came away with the strong belief that HPE’s %10bn run rate server business was in for a wild ride as AI cascades through global datacentres over the next few years. The underlying performance is tied to a well-orchestrated strategy that combines proprietary solutions such as HPE Private Cloud AI with partnerships like the Deloitte collaboration. However, the AI market is notoriously competitive and lumpy. HPE’s decision to de-book $700 million in AI orders illustrates its rigorous risk management but highlights challenges in balancing growth with deal quality. I will be tracking this lumpy nature of the revenue in quarters ahead, but the underlying trend of AI being a tailwind for servers is without question, at least in the short to medium term.

Hybrid Cloud remains another bright spot. Revenue in this segment grew 18% year-over-year, driven by the adoption of HPE GreenLake and the Alletra MP platform. HPE was early to transition to an ARR model for infrastructure, and the benefits of this early pivoting are now manifesting themselves in the quarterly earnings. The ability to seamlessly integrate multi-protocol storage and cloud-native architectures is increasingly important as enterprises seek solutions for managing data-intensive AI workloads. The successful transition to software-defined storage, exemplified by Alletra MP, positions HPE as a strong competitor in the hybrid cloud market.  

Intelligent Edge performance, however, remains a mixed bag. While orders have grown for three consecutive quarters, revenue stayed flat sequentially due to a shift toward subscription models and delayed product mix recovery in campus switching. The anticipated recovery in the networking segment, combined with the expected benefits of the Juniper Networks acquisition, will provide a much-needed boost in this area.  I expect the global channel and GTM structures where HPE has long been leading the market will provide accretive growth for Juniper and are not being factored in fully into the accretive nature of the acquisition thesis.