It has been about a month since the last earnings report for Hewlett Packard Enterprise (HPE Quick QuoteHPE - Free Report) . Shares have added about 18.6% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Hewlett Packard Enterprise due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its latest earnings report in order to get a better handle on the important drivers.

HPE Q3 Earnings Surpass Expectations, Revenues Rise Y/Y

Hewlett Packard Enterprise posted non-GAAP earnings of $1.11 per share for the third quarter of fiscal 2026, which increased 152.3% year over year and beat the Zacks Consensus Estimate of 95 cents by 16.8%.

Revenues of $12.21 billion rose 33.7% year over year and beat the consensus estimate by 1%. The quarter benefited from accelerating demand for traditional servers, AI systems and networking, while disciplined pricing and a richer networking mix supported profitability.

HPE’s normalized orders increased 42% year over year, and total AI backlog reached a record $7.6 billion exiting the quarter.

HPE's Networking Orders Outpace Shipments

Networking revenues were $2.89 billion, up 74.9% year over year on a reported basis and 10% on a normalized basis. The segment's operating margin was 22% compared with 22.1% in the year-ago quarter.

Normalized Networking orders increased 36%, materially faster than revenues as supply constraints limited conversions. Campus & Branch revenues were $1.44 billion, while Routing contributed $788 million. Networks for AI orders reached $700 million in the quarter, taking cumulative orders to $2.2 billion and prompting HPE to raise its fiscal 2026 target to $2.5-$3 billion.

The company also signed a gigawatt-scale deal with Oracle for routers and switches supporting a major AI cloud infrastructure buildout. Management said networking purchase commitments more than doubled sequentially to help improve supply availability and convert the elevated backlog.

Hewlett Packard Enterprise's Cloud & AI Demand Accelerates

Cloud & AI revenues totaled $9.04 billion, up 25.4% year over year. The segment's operating margin expanded to 17% from 7%, supported by strong server demand, pricing and scale.

Server revenues rose 35.3% to $6.77 billion, while Storage revenues increased 10.2% to $1.29 billion. AI Systems orders were $2.4 billion, and backlog climbed to $6.8 billion. After quarter-end, HPE was awarded a $3.5 billion inferencing deal with a hyperscaler customer.

Private Cloud AI orders increased at a triple-digit rate year over year, while the HPE GreenLake customer count grew 18% to 52,000. Management said enterprises are moving from AI pilots toward production use cases, particularly agentic AI and inferencing workloads.

HPE Expands Margins on Pricing and Mix

Non-GAAP gross profit reached $4.93 billion, up from $2.73 billion a year ago. The non-GAAP gross margin widened to 40.4% from 29.9%, reflecting pricing discipline in traditional servers and a favorable mix.

Non-GAAP operating profit increased to $1.98 billion from $777 million, while the operating margin improved to 16.2% from 8.5%. Non-GAAP operating expenses rose 17.3% sequentially to $2.95 billion, mainly because of higher variable compensation.

Management expects gross margin to moderate as AI Systems become a larger portion of sales and traditional server margins normalize. Juniper integration synergies remain on track to reach a $600 million annualized run rate by the end of fiscal 2028, with the integration running ahead of plan.

Hewlett Packard Enterprise Strengthens Cash Flow

Operating cash flow was $1.64 billion, while free cash flow totaled $958 million. HPE returned $324 million to common shareholders through dividends and share repurchases during the quarter.

Cash and cash equivalents ended the period at $6.22 billion. Total net debt fell to $14.03 billion, and the net debt-to-adjusted EBITDA ratio declined to 1.8 times, below the company's two-times target more than a year ahead of its original plan.

HPE Raises Fiscal 2026 and 2027 Outlook

For the fourth quarter of fiscal 2026, HPE expects revenues of $13.9-$14.8 billion and non-GAAP earnings of $1.20-$1.30 per share. Networking revenues are projected to grow 11-13%, while Cloud & AI revenues are expected to increase 60-72%.

For fiscal 2026, HPE raised its revenue growth outlook to 34-37% and non-GAAP earnings-per-share guidance to $3.75-$3.85. Free cash flow is now expected to be at least $3.75 billion.

For fiscal 2027, management raised its revenue growth framework to 13-17% and projected non-GAAP earnings-per-share growth of 16-20%. The company expects a 14-15% non-GAAP operating margin and free cash flow of at least $5 billion, with Networking revenue growth of 14-17% and Cloud & AI growth of 14-18%.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a upward trend in estimates revision.

The consensus estimate has shifted 23.86% due to these changes.

VGM Scores

At this time, Hewlett Packard Enterprise has a average Growth Score of C, a score with the same score on the momentum front. Following the exact same course, the stock has a score of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Hewlett Packard Enterprise has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.