How HPE's Juniper Acquisition Strengthens AMD Partnership, AI's Networking Reach

SPEAKER_1 (0:00)

So joining us now to discuss more on HPE and its broader role in AI networking is Zeus Kerravala, founder and principal analyst at ZK Research. Zeus, thank you so much for joining the show today. Now we know HPE is increasingly being viewed as a networking company rather than a compute company. So really, in your opinion, how important is that shift in investor perception and what does it mean for the stock?

Zeus Kerravala (0:24)

Yeah, well, first, thanks for having me on. I appreciate the time.

I think it's a big shift for HPE. Obviously, most of the investment analysts that know them think of them as a compute company. I think the easy way to think about this, Jenny, is that if everyone understands the value the GPUs have in the AI ecosystem, something has to feed those GPUs the data they need to be effective, and the network does that. So it was a big bet that Antonio Oneri, HPE CEO made acquiring Juniper Networks, but I think it's proven to be the right one because now they can play that critical role in feeding those GPUs that run on HPE servers.

Alec (1:02)

Yes, Zeus, how does that all fit together? I know they got a long-standing relationship with AMD as well, that recent Vulture deal really highlights that with the Helios AI racks in which HPE's networking stuff is tied in there. How much of that is Juniper technology and how much of it is sort of legacy HP technology?

Zeus Kerravala (1:26)

Yeah, most of that is Juniper technology now. And the AMD relationship is interesting because we are seeing a shift in where you think of AI being run. And so historically, when you think of AI, you think of data centers, you think of the big heavy iron that does a lot of the training. Today, a lot of the use of AI is moving to the edge. More inferencing, lighter use cases, open weight models. You don't need quite the same horsepower there that you do in the data center, and AMD does a fantastic job there. So the partnership with AMD is key.

I think one of the things really interesting about Juniper is they use a mix of custom silicon and merchant silicon and so that's off the shelf silicon. And so they can really, I think, deliver a tailored solution both in the data center, but more importantly, looking forward at the edge. And that's where that AMD partnership is important.

SPEAKER_1 (2:19)

Okay. And the Juniper integration, I think so interesting, it does appear to be at least progressing faster than expected with synergy targets now rising to roughly 800 million. And so as far as integration risk, because that now moved a bit more into the rear view mirror, do you still see that being perhaps a concern as we approach the back half of this year?

Zeus Kerravala (2:37)

Look, there's always concerns here. I do think they've done a better job than even I expected. I was very skeptical that they could even hit that 450 number. If you look historically, HPE hasn't been a great acquirer, but I think they've learned some things in the past. I think one of the things they did here was they allowed a very savvy Juniper team run the integration of the networking groups, and that created a lot of the synergies. To me, the next leg in the stool for HPE is to find a way to integrate what they're doing on the compute side and networking side together.

I think we will probably see that looking ahead. But the first order of business obviously was integrate the networking groups. Now, I would think that you'd want to create a bigger HPE story. So that might be where some integration risks. But I think on the networking side, that worry is mostly passed.

Alec (3:29)

One of the things too that seems to be very clear, and this may be kicked off, let's call it late spring, early summer. The street really started to buy into the story, and you see the stock price rewarded. So as you take a look at HPE here, trading $70 a share versus where it kind of began the year, let's say around 20

Where is this surprise factor that's going to continue to kind of power this ascent? Is the street pretty clued into what's going on now from your perspective?

Zeus Kerravala (4:06)

I think the traditional networking analysts certainly are. I think they have to get the traditional compute analysts on, the people that have looked at HPE historically.

I do think that they're, Alec, to your point, there's a better awareness from Wallscreen now of the role that networking plays, and we are seeing a rising tide here. When you look at the other networking names, Cisco, Arista, they've all seen pretty good uptake as well. I think the important part for HPE here moving forward is they do have a good security story as well. They don't really tell that story all that often, and I think you could see what they're trying to do in the area of secure networking, create that surprise uplift looking ahead. But I do think the networking story, the numbers HPE have given, I think are baked into that number now, and I would expect the upside surprise to come from something like security.