Hewlett Packard Enterprise Co. (HPE) shares skyrocketed in premarket trading Tuesday after the company reported fiscal second-quarter results that blew past Wall Street expectations and raised its full-year outlook. The culprit? A seemingly insatiable appetite for AI infrastructure, servers, and networking gear.

Adjusted earnings jumped 108% year over year to 79 cents per share, well ahead of the 53-cent analyst estimate. Revenue rose 40% to $10.68 billion, topping consensus estimates of $9.79 billion and even exceeding the high end of management's own guidance range. The company said total orders more than doubled from a year earlier and continued to grow significantly faster than revenue.

Margins Expand, Cash Flow Strengthens

Gross margin expanded 750 basis points to 36.9%, helped by favorable product mix, pricing actions, Catalyst cost savings, and synergies from the Juniper integration. Operating profit increased to $1.4 billion, resulting in an operating margin of 13.3%, compared with 8.0% a year earlier.

Operating cash flow totaled $1.4 billion, while free cash flow reached $915 million during the quarter. HPE also received about $1.36 billion in cash proceeds from the sale of its remaining 19% stake in H3C Technologies. Since announcing its exit from the joint venture, the company has generated approximately $3.5 billion in total pre-tax proceeds from the investment.

The company said its Catalyst restructuring program remains ahead of schedule. Headcount has been reduced by more than 9% to roughly 65,000 employees, while AI-driven automation now accounts for about 20% of fiscal 2026 savings initiatives.

Networking and AI Segments Deliver Strong Growth

Networking revenue reached $2.7 billion and posted double-digit growth on a normalized basis. Orders continued to outpace revenue growth, signaling sustained demand. Campus and branch networking orders reached record levels, rising in the upper-20% range. Wi-Fi 7 access point sales increased more than sevenfold, while data-center switching orders climbed nearly 20% and routing orders rose close to 30%, supported by cloud and AI infrastructure spending.

Cloud and AI revenue increased 23% to $7.7 billion. Server revenue rose 33%, aided by triple-digit growth in traditional server orders tied to AI inferencing workloads and infrastructure modernization projects.

AI systems generated $1.8 billion in new orders during the quarter, bringing cumulative bookings to $16.4 billion. HPE ended the quarter with a $5.9 billion AI backlog, while management said its pipeline remains several times larger.

CEO Antonio Neri said customers remain committed to AI investments despite budget pressures from higher commodity-driven costs. Speaking on the earnings call, Neri said the company has not seen customers pull back spending or delay projects. Instead, organizations are accelerating technology deployments to avoid falling behind in the race to adopt artificial intelligence.

"Nobody wants to be left behind when it comes down to deploying AI," Neri said, adding that demand remains strong even as customers navigate a more challenging cost environment.

Hewlett Packard Raises Full-Year Guidance

HPE significantly increased its fiscal 2026 outlook and now expects adjusted earnings of $3.35 to $3.45 per share, up from prior guidance of $2.30 to $2.50 and well above the $2.43 analyst consensus estimate. The company also raised fiscal 2026 revenue guidance to a range of $44.24 billion to $45.61 billion, compared with previous guidance of $40.13 billion to $41.84 billion. Analysts had expected revenue of about $40.89 billion.

HPE now forecasts fiscal 2026 revenue growth of 29% to 33% and free cash flow of at least $3.5 billion. For the third quarter, the company expects adjusted earnings of 88 cents to 93 cents per share on revenue of $11.5 billion to $12.1 billion. Analysts were expecting earnings of 58 cents per share and revenue of $10.94 billion.

Looking ahead to fiscal 2027, HPE projects revenue growth of 8% to 12%, adjusted EPS growth of 12% to 16%, and free cash flow of at least $4.5 billion. The company also said it now expects cumulative Networks for AI orders to exceed $2 billion by the end of fiscal 2026.

HPE Price Action: Hewlett Packard shares were up 25.85% at $59.15 during premarket trading on Tuesday. The stock is trading at a new 52-week high.