Investing.com -- Hewlett Packard Enterprise Co (NYSE:HPE) is likely to continue growing its artificial intelligence server revenues and see improvement in its storage business, according to analysts at Barclays.
In a note to clients raising its rating of HPE to "Overweight" from "Equal-weight", the analysts said that, despite taking a more "prudent" approach to its AI operations, the company is still "accelerating orders and revenue" in the area.
In its most recent quarter, AI server orders had surged by 167% versus the prior three-month period, the analysts noted.
"We expect AI server revenue to grow sequentially [more than] 30% next [quarter] as well. Importantly, HPE has been able to remain competitive in the arena without further pressuring already low [gross margin] business," the analysts said.
"We estimate HPE is getting [roughly] 15% [gross margin] on its AI server business, and this is with majority hyperscaler business."
They added that HPE's storage segment is updating its portfolio and working to replace third-party intellectual property with their "own internally developed solutions." The move will help secure future recurring revenue, they argued.
The comments come after HPE lifted its annual profit forecast earlier this month, thanks in part to businesses spending more on developing their AI infrastructure.
Despite fierce competition from fellow server manufacturers like Dell Technologies (NYSE:DELL), HPE said it now expects to post full-year adjusted earnings per share of $1.92 to $1.97, up from a prior outlook of $1.85 to $1.95. Dell also raised its annual profit and revenue guidance in August.
But shares in the group dropped at the time as investors fretted over a dip in third-quarter revenue in HPE's data analysis and traditional cloud divisions, Reuters reported. HPE's decision to leave its full-year revenue unchanged also weighed on the stock, the news agency said.