Hewlett Packard Enterprise (NYSE: HPE) delivered a quarter that makes its guidance raise look conservative. Revenue hit $12.2 billion, up 34% year-over-year and 14% sequentially, clearing the $11.97 billion consensus by a wide margin. Non-GAAP diluted EPS of $1.11 beat the high end of management's own $0.88-$0.93 range and the $0.93 estimate. GAAP EPS of $1.06 also exceeded the company's $0.84-$0.89 outlook.
The beat was broad-based. The engine is unmistakable.
Cloud & AI revenue rose 25% to $9.0 billion, with segment operating margins more than doubling to 17.0% from 7.0% a year ago. Server revenue alone grew 35% to $6.8 billion. Networking revenue surged 75% to $2.9 billion, driven by a 270% jump in Routing and 112% growth in Data Center Networking. The Juniper acquisition is clearly delivering on the top line. The margin story is equally compelling: non-GAAP gross margin expanded 1,050 basis points to 40.4%, and non-GAAP operating margin hit 16.2%, up 770 bps.
The magnitude of this beat validates the multi-year framework HPE is now laying out. Management raised FY26 revenue growth guidance to 34%-37% (from prior levels), lifted GAAP EPS to $2.93-$3.03, and boosted non-GAAP EPS to $3.75-$3.85. Free cash flow guidance was raised to at least $3.75 billion. The more telling signal is the FY27 framework: revenue growth of 13%-17%, non-GAAP EPS growth of 16%-20%, and non-GAAP operating margins of 14%-15%. That implies the company sees the current demand cycle as durable, not a one-time pull-forward.
Cash flow supports the confidence. Operating cash flow was $1.6 billion in Q3, and free cash flow reached $1.0 billion. For the first nine months, free cash flow was $2.6 billion versus negative $934 million in the prior-year period. The company plans to return at least 75% of FY26 free cash flow to shareholders in Q4, a signal that management sees the balance sheet as strong enough to both invest and reward.
The guidance raise itself is aggressive relative to the beat. HPE raised FY26 non-GAAP EPS by $0.15 at the midpoint, but the Q3 beat alone was $0.18 above the prior midpoint. That suggests management is leaving some conservatism in the back half, perhaps reflecting uncertainty around component supply or the pace of AI infrastructure deployment. The FY27 framework, however, is a statement of intent: 14%-15% non-GAAP operating margins imply continued mix shift toward higher-margin networking and AI solutions, even as revenue growth decelerates from the Juniper-boosted FY26 pace.
Next up is the Q4 guide. Revenue of $13.9-$14.8 billion implies sequential growth of 14%-21%, a high bar even by HPE's current trajectory. If the company clears that, the FY27 framework starts to look achievable rather than aspirational. The record order backlog CEO Antonio Neri cited is the key variable: how much of that backlog converts to revenue in the next two quarters will determine whether the stock's rerating has further to run.