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Antonio Nearer joints us Here, CEO of HPE. Antonio, thanks so much for joining us here talk to us about what are the key issues for you guys going forward here to this AI story is a story that's playing out across the tech stack.
Well, good morning, Paul, thanks for having me. Yes, of course, today the narrative is all around the AI and the ability to use AI to change the world. And so for us as a technology company is how we accelerate.
The deployment of AI in the enterprise.
And today we talked about the you know, the evolution of just large language models, introegantic models, which allows you know, to increase productivity across the entire enterprise, cross processes and functions. And so we have made that series of announcements here which brings together the infrastructure, the software, and the cloud experience into one integrated, unified operated model including governance and compliance. So that build the trust with an enterprise to go forward.
And how does this change your growth trajectory going forward? I know that you know one year out might look very different from five years out versus ten years out. Just walk us through how you see this changing what you had anticipated to what you now think you can achieve.
Yeah, ask Caarli.
So if you go back and read our earnings and Q two, we grew the company as a whole forty percent year over your own revenues, and we expand our margins because of the content that we bring into Our revenue now has a bigger mix of networking, software and cloud services, and in that context, we believe networking is going to be the thesis of our company. If you think about developing these frontier models, whether proprietary or open
source models, you need a lot of GPU power. That GPU needs to be very productive, you don't want to keep it idle, and the bottleneck of that is networking. And so we have now with the acquisition of Juniper, an amazing portfolio in the three key.
Elements, scale up, scale out, and scale.
Across, which position us to be core element of that infrastructure build out. So this is why we believe the company is going to grow double digits going forward and will continue to expand operating margins, and that will translate in free cash law. So we already guide it, which is unlikely and you know in many cases for six quarters ahead, So think about it because of the confidence we have in a growth trajectory.
Antonio, where do you think this technology, this AI technology story is. I mean a lot of folks are saying we're still in a very very early innings, but you just think about the amount of CAPEX that is being spent by a variety of players within the sub stack. It's just extraordinary. Where do you think we are in that comparim there of AI investment.
I concur with that we're still early.
And Paul, what you have to understand that is three customer segments you have to look into it. Number one is the model builders and the hyper scale is the neo clouds. We're building large amounts of compute capacity. We believe by the end of the decade, we're going to build two hundred and fifty gigawad of power that will host these gibus and that's the cape you're talking about it. But then ultimately, what is the mix of the capacity.
It's going to be shifted from training models to influencing models, and that's where we're going to see the large adoption of you know, AI into the enterprise to drive that productivity. But if you put an context of industrial revolutions in the past.
This actually is very small.
Compared to that spend that was done, you know, in every inflection point, including the turn.
Of the past century.
So yes, I understand the concern about the montal capex, but when you're put it in context of changing the way we work, the change in our society will still small relative to that.
You know, just looking at how you might be deploying cash. I know that you tap the debt market in March to refinance some upcoming maturities. You've got strong liquidity with cash and equivalents of more than five billion dollars at the end of the second quarter. What might prompt you to go to the debt market again to raise more money.
Well, we do that very regularly because remember inside the HPE we have an operating company. Obviously we are paying down the debt and refinancing where we need to, and that's the operating balance sheet you're referring to. So our balance sheet is super super strong. And then we have the financing company, which has thirteen billion dollars under asset management.
Think about the finance that we do for cass stomers and we do it also surpass of the asset lifecycle management services, and basically we have debt securities against those assets, but the return on equity on that is super high, super super high, So we use those vehicles when it's necessary. But what we announced just at the beginning of this month in our earning is is that we're going to pay down that debt much faster.
In fact, we.
Expect a return to two times leveraged by the end of this fiscal year, which is one year ahead of plan, and we're going to start returning seventy five percent approximately over free cash flow in twenty twenty seven to shareholders, which we expect to generate at least four point five billion dollars in individends.
And share buybacks. That's how we're going to return it.
So we are very strong, and that comes back to the question you asked me before, where it comes from the growth and the operating margets