HPE stumbles over server profit margins

HPE cannot escape the strict judgment of investors either. A positive quarterly report is punished due to lower profit margins on (AI) servers.

HPE saw its share price fall by 1.5 percent after announcing its quarterly report for the second quarter of 2024. However, the figures gave little reason for this. HPE reported a strong quarter with net profit of $512 million, up from $464 million in the previous year. Sales also rose by ten percent to $7.7 billion.

Investors see what they want to see and have been impressed by the profit margins HPE is achieving on its AI servers. Although HPE has retrained itself as a hybrid cloud specialist in recent years, the company’s roots lie in the server market. However, HPE reported record quarterly revenue of $3.4 billion for its server division.

However, profit margins did not improve, falling from 33.4 percent to 31.8 percent. Chief Financial Officer Marie Myers tried to counteract this by pointing to a “higher mix of server revenues” and stressing that the company’s servers were “particularly suited to enterprise AI.”

Huge expectations

HPE is not the only company to be penalized for apparently good quarterly results. The largest companies in the technology industry, from Microsoft to Nvidia, are struggling to justify their results. Positive sales and profit growth is no longer enough to satisfy shareholders: every number in the quarterly report must be black.

Tech companies have set the bar high for themselves, but it’s also fair to say that the AI ​​hype has sometimes led to irrational behavior among investors. Many investors have bought into the hype without any sense of realism, assuming there will be endless good news. Any number that penetrates that cloud is punished mercilessly.