Hewlett Packard Enterprise (NYSE: HPE) posts $1.05b Q2 FY25 loss despite revenue growth, market maintains cautious optimism

Why Did Hewlett Packard Enterprise Stock Fall Despite Revenue Growth?

Hewlett Packard Enterprise (NYSE: HPE) delivered a mixed performance in its Q2 FY25 earnings report. The enterprise IT giant reported net revenue of $7.63 billion for the quarter ended April 30, 2025—a 6% year-over-year increase that beat Wall Street estimates. However, the company also posted a significant net loss of $1.05 billion, largely due to a one-time, non-cash goodwill impairment charge related to its Hybrid Cloud segment.

Despite the headline loss, markets responded with cautious optimism. The company’s core businesses, particularly in Intelligent Edge and Hybrid Cloud, showed strong momentum, and adjusted earnings per share came in above expectations. The report underscores a broader tech industry theme of balancing growth and margin preservation amid ongoing digital transformation and AI adoption.

What Caused the $1.05 Billion Loss for HPE?

The loss was primarily driven by a $1.361 billion goodwill impairment in the Hybrid Cloud business—a move reflecting lowered expectations for future cash flows from legacy acquisitions. Goodwill impairments, while non-cash in nature, signal a downward reassessment of asset value and often raise red flags for investors.

HPE emphasized that its core operations remain solid. On a non-GAAP basis, which excludes the impairment and other one-off charges, the company posted net earnings of $545 million and diluted EPS of $0.38. Non-GAAP operating profit reached $613 million, representing an operating margin of 8.0%, compared to a GAAP operating loss of $1.109 billion.

How Did HPE’s Core Segments Perform in Q2 FY25?

The Server segment brought in $4.06 billion in revenue, up 6% from the prior year. However, its operating profit margin declined to 5.9% from 11.0% last year, indicating cost inflation and possible competitive pricing dynamics. Server revenue remains the largest among HPE’s segments but continues to face margin pressure.

Revenue from Hybrid Cloud rose 13% year-over-year to $1.45 billion, with operating margins improving from 1.0% to 5.4%. The impairment notwithstanding, this unit’s operational metrics suggest improving scalability and early benefits from streamlining efforts.

HPE’s Intelligent Edge business—central to its AI and edge computing strategy—grew 7% year-over-year to $1.16 billion. With an operating margin of 23.6%, it remains the company’s most profitable segment, driven by high demand for AI-powered edge infrastructure and networking solutions.

Revenue from Financial Services slightly declined to $856 million, but margins improved from 9.3% to 10.4%, reflecting tighter asset management and a more efficient cost base.

What Is the Current Market Sentiment Around HPE Stock?

The market responded positively to the earnings beat and segment strength, with HPE’s stock rising 6% in the immediate aftermath of the report. As of June 5, 2025, HPE shares are trading at $17.84, up 0.68% from the previous close.

Institutional sentiment has remained broadly supportive. Over 91% of HPE’s shares are held by institutions. Vanguard Group, BlackRock, and State Street continue to maintain strong positions, while recent 13F filings show increased holdings by Pacer Advisors Inc. and National Bank of Canada FI.

Wall Street is also warming to the stock. Evercore ISI recently upgraded HPE from “In-Line” to “Outperform” and increased the price target to $22, citing better-than-expected earnings quality and attractive valuation metrics.

How Does HPE Stack Up Against Its Competitors?

With a forward P/E ratio of 9.53 and EV/EBITDA of 5.53, HPE trades at a relative discount to many of its peers. Cisco Systems, Dell Technologies, and IBM carry higher multiples, reflecting their exposure to high-margin services or diversified business models.

Where HPE stands out is in its targeted focus on hybrid IT, AI, and edge computing. The Intelligent Edge business, with margins consistently above 20%, showcases the company’s ability to differentiate in a competitive landscape increasingly dominated by software-defined solutions and cloud-native architectures.

What Role Does the H3C Divestiture Play in HPE’s Restructuring?

In September 2024, HPE sold a 30% stake in its Chinese joint venture, H3C, for $2.0 billion post-tax. The move aligns with a broader strategy to exit lower-margin or geopolitically sensitive assets and refocus on core, high-growth geographies.

While the divestiture removed equity income and future dividends from H3C, it also reduced exposure to regulatory risk and freed up capital. Related severance costs came in at $20 million as the company implemented cost-cutting measures to offset the earnings impact. HPE retains the option to divest the remaining 19% stake in the future, presenting a potential source of liquidity and strategic flexibility.

What Do Cash Flows Reveal About Financial Health?

One concern for investors is Hewlett Packard Enterprise’s negative free cash flow. The company reported FCF of -$847 million for the quarter and -$1.724 billion for the first six months of FY25. This marks a significant decline from positive $610 million and $128 million, respectively, in the same periods last year.

The drop stems from increased CapEx—over $1 billion in the first half—alongside reduced operating cash flow, impacted by restructuring costs and higher inventory levels. Despite the short-term cash drain, HPE maintains a strong cash position of $11.67 billion, offering ample liquidity to weather investment cycles and fund the pending Juniper acquisition.

How Are Analysts and Institutions Positioning on HPE?

HPE is viewed with cautious optimism by analysts. While the impairment charge has raised some concerns, the core business performance and revenue beat have reassured investors. Key themes shaping sentiment include strength in high-margin Intelligent Edge and improving Hybrid Cloud operations, strong institutional support and positive analyst revisions, and execution risks around the Juniper Networks acquisition and free cash flow remaining as watchpoints.

With major brokerages like Evercore turning bullish and institutional investors increasing stakes, HPE appears to be gaining traction as a value play within the enterprise tech landscape.

What’s Next for Hewlett Packard Enterprise?

Hewlett Packard Enterprise is preparing for a transformative second half of FY25. The anticipated $14 billion acquisition of Juniper Networks is set to close later this year. This deal is expected to significantly expand HPE’s presence in AI-native networking and cloud management software, setting the stage for end-to-end enterprise IT solutions.

Beyond Juniper, further mergers and acquisitions may follow as HPE aims to strengthen its software-defined infrastructure portfolio. Management has reiterated full-year guidance, including a 15% non-GAAP tax rate and steady mid-single-digit revenue growth.

With hybrid cloud adoption accelerating and AI transforming enterprise workloads, HPE’s edge-to-cloud strategy places it in a competitive spot for long-term growth. Success will hinge on integration execution, margin preservation, and a rebound in free cash generation.

Despite a headline GAAP loss, Hewlett Packard Enterprise (NYSE: HPE) has seen a resilient market response. Institutional investors are net buyers, analysts are raising forecasts, and the company is pressing forward with transformative bets in edge computing and AI infrastructure.