Hewlett Packard Enterprise (HPE) has announced its first quarter results, which were a mixed bag for the technology giant. While the company surpassed adjusted earnings per share (EPS) expectations, it fell short on revenue, reporting $6.76 billion compared to the expected $7.10 billion.

CEO Antonio Neri attributed the revenue shortfall to several factors, including tough competitors, a slowdown in the networking market, and limited supply in the field of artificial intelligence (AI). Neri acknowledged that last year's quarter saw a substantial backlog of shipments, making for a challenging comparison this year.

The networking slowdown was a common trend observed in the market among HPE's peers. Additionally, the company faced a constraint in the supply of AI technology, which resulted in some revenue being deferred. Neri pointed out that as enterprises increasingly adopt AI systems, especially in the inferencing aspect, they are opting for more flexible payment models rather than investing in large-scale systems upfront.

Despite these challenges, Neri emphasized that HPE continues to drive strong profitability, with a growth of 200 basis points year-over-year and 600 basis points over the last five years. The company's recurring revenue also saw an increase of 41% in the first quarter.

Looking ahead, Neri highlighted HPE's focus on building AI-optimized infrastructure to meet the growing demand for robust data center capabilities in the enterprise space. He emphasized the critical role HPE's technology will play in running complex AI systems at scale in the future. Currently, the company plans to offer alternative solutions to meet customer needs within the limitations of available AI supply.

During the earnings call, Neri also acknowledged the power and cooling requirements necessary for efficient AI implementation within companies. HPE has set up two sites in a service model to host AI environments, recognizing that enterprises often lack the necessary power and cooling capacities in their data centers. Neri revealed that running large AI systems can demand more than 2 megawatts of power for 500 GPUs, which poses a significant challenge.

Despite the mixed results, HPE remains optimistic about its future prospects, with a backlog of $3 billion in AI contracts reinforcing their confidence in upcoming revenues. The company is committed to addressing the challenges it faces and capitalizing on the growing opportunities in the AI market.

Investors will closely watch HPE's response to these hurdles and how the company continues to adapt and innovate to maintain its competitive edge in the fast-evolving technology landscape.