By Hewlett-Packard Enterprise hosted its first-ever artificial intelligence day in Wisconsin, showcasing its plans for the AI data center market.
The event game a glimpse of how the company plans to dominate some of the fastest-growing business segments connected to the data center supply chain.
The Total Addressable Market (TAM) for data centers is projected to reach $171 billion by 2027. This is a 25% annual growth rate that HPE wants to take a piece of.
The two main business segments that the company intends to dominate to achieve this objective are networking products and Direct Liquid Cooling (DLC) solutions.
Both these segments are likely to see enormous growth thanks to the demand-driven mainly by AI service providers and hyperscalers.
HPE’s new products
HPE is a major player that caters to the supply chain demands of the AI data centers market. At its artificial intelligence event, it showcased the products that it believes will help it dominate this market.
HPE’s ProLiant Compute XD685 was the highlight of the event.
It is a server system powered by AMD’s much-touted EPYC processors.
The system will be used in AI clusters that are used in complex tasks, especially large language model training.
Since these are energy-efficient processes, the company markets the product as a high-performance and energy-efficient solution.
The company also updated its fanless, liquid-cooled Cray EX system.
HPE: cashing in on the networking and DLC demand
HPE acquired Juniper Networks for $14 billion earlier this year. Networking is expected to grow to a $135 billion market by 2027.
The increasing complexity of networking systems demands solutions that companies like HPE are well placed to provide.
The management believes networking is one of the biggest revenue generators after the AI server market.
The only difference is that networking can be scaled to services across the globe in all countries while data center services are limited.
That limitation does not stop the company from becoming a leader in server cooling technologies.
Hyperscalers and AI service providers are expected to grow at a 30% CAGR in the next 3 years.
This growth will largely be driven by the demand for liquid cooling solutions.
HPE’s direct liquid cooling solutions will be the main growth driver in the next few years.
While the AI event proves that the company is ready to provide the best solutions to its customers, it does not solve the problem of shrinking margins for the company.
Investors should be content with the 1-3% revenue growth that the management expects this fiscal year.
This would mean the company’s multiples continue to stay depressed, offering a good buy opportunity.
Once the AI-induced growth starts the kick in, the company starts growing at the same pace as its peers, and the margins improve, a re-rating will be imminent.
Investors would be glad to see that the management is on target to achieve all these in fiscal year 2025.
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