By Zaheer Kachwala

(Reuters) – Hewlett Packard Enterprise raised its annual profit forecast on Wednesday, as demand for artificial intelligence servers continues to pick up owing to higher investments in AI infrastructure by businesses.

However, shares of HPE fell nearly 3% in extended trading. Michael Ashley Schulman, chief investment officer at Running Point Capital, attributed the share fall to a drop in quarterly revenue in the company’s data analysis and traditional cloud segments.

The company leaving its full-year revenue forecast unchanged has also weighed on shares, he added, as expectations for AI-linked companies remain high.

HPE’s AI server business, however, continues to outperform as computers powered by Nvidia are capable of processing and executing complex commands quickly and efficiently, making them attractive to tech firms investing in generative AI and machine learning.

HPE reported third-quarter server revenue of $4.3 billion, a rise of 35% from the prior year.

The company, however, does face tough competition from server makers like Dell Technologies, which raised its annual profit and revenue forecasts last month on the back of server demand.

HPE raised its forecast for annual adjusted earnings per share to a range of $1.92 and $1.97, from $1.85 and $1.95.

For the fourth quarter, the company forecast revenue to be between $8.1 billion and $8.4 billion, while analysts were expecting $8.18 billion.

The company said it expects fourth-quarter adjusted EPS of between 52 cents to 57 cents per share, compared with estimates of 55 cents, according to LSEG data.

Revenue for the quarter ended July 31 came in at $7.71 billion, beating estimates of $7.67 billion.

On an adjusted basis, the company earned 50 cents per share, compared with estimates of 47 cents.