Hewlett Packard Enterprise (HPE, Financial) stock plunged 16% on Friday morning trading following a mixed Q1 2025 earnings report. The enterprise IT specialist, distinct from its better-known sibling HP (HPQ, Financial), posted revenue of $7.85 billion, slightly above forecasts of just over $7.8 billion, but earnings per share fell to $0.49, a penny below the $0.50 consensus.
Despite a 17% year-on-year revenue growth and robust performance in artificial intelligence, with net orders reaching $1.6 billion and enterprise AI orders up 40%, weak margins fueled the sell-off. Gross margins dropped 720 basis points to 29.2% from 31.8%, and although GAAP earnings surged 52%, GAAP profit lagged at $0.44 compared to non-GAAP estimates.
In fact, the company earned negative free cash flow of $877 million, which is not even close to in line with sustainable earnings quality. The disappointing guidance for 2025 has prompted investors to rework their view on this key Enterprise IT provider.
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