- Dell Technologies Inc. saw a significant drop of about 13% in premarket trading after failing to meet high investor expectations for its AI server business.
- While revenue increased by 6.3% to $22.2 billion, it fell short of impressing investors, despite surpassing analysts’ average estimates.
- Revenue from Dell’s AI-equipped servers more than doubled, reaching $1.7 billion, with a backlog exceeding $3.8 billion, but this wasn’t enough to offset the disappointment.
- Dell revised its revenue outlook for FY 2025 to $93.5 billion to $97.5 billion, with adjusted profit forecasted at $7.65 a share, slightly below analyst estimates.
- Dell’s shares plummeted by 13% in premarket trading, indicating potential significant losses and marking the largest decline since August 26, 2022.
- Despite a marginal change in PC revenue, Dell noted unexpected growth in business PC sales, contrary to analysts’ projections.
- The broader PC market showed signs of recovery, with a 1.5% increase in shipments in Q1 2024, driven by new Windows software and AI-equipped hardware.
- Dell’s infrastructure unit, including servers and networking equipment, saw a robust 22% surge in total sales, reaching $9.2 billion.
Main AI News:
Dell Technologies Inc. faced a stark plummet of approximately 13% in premarket trading on Friday as its recent revenue surge failed to meet the soaring expectations of investors eagerly eyeing the company’s AI server sector. Despite marking its first revenue uptick since 2022, Dell’s performance left investors underwhelmed.
In the period ending May 3, sales surged by 6.3%, reaching $22.2 billion, as reported by the Round Rock, Texas-based corporation on Thursday. Although surpassing analysts’ average forecast of $21.6 billion, the profit, excluding certain items, settled at $1.27 a share, slightly below the projected $1.23.
Chief Operating Officer Jeff Clarke highlighted a significant surge in revenue from Dell’s robust servers, specifically tailored for AI tasks, which more than doubled from the previous quarter, soaring to $1.7 billion. Clarke further noted a remarkable 30% quarter-over-quarter increase in the backlog for these cutting-edge machines, now standing at a staggering $3.8 billion.
Fueling optimism, Chief Financial Officer Yvonne McGill expressed confidence that the robust demand for AI-driven technologies would persist throughout the year, setting an optimistic tone for the future during a post-results conference call.
Buoyed by this optimism, Dell revised its revenue outlook for the fiscal year ending in February 2025, anticipating a range of $93.5 billion to $97.5 billion, representing an 8% increase at the mid-point. This exceeded analysts’ average estimate of a 7% gain. Adjusted profit is forecasted at approximately $7.65 a share, slightly below the $7.70 average estimate.
However, the market’s exuberance surrounding Dell’s AI segment amplified expectations for Thursday’s results, leading to some disappointment among analysts. Woo Jin Ho, an analyst at Bloomberg Intelligence, noted that while the results were not poor per se, they fell short of the lofty expectations set by the market.
In response to the lackluster performance, Dell’s shares plummeted by about 13% in premarket trading on Friday, signaling potential significant losses, with the stock poised for its most substantial decline since August 26, 2022. Despite a remarkable surge over the past year, with the stock more than tripling in value, the recent setback underscores the volatility inherent in the technology sector.
Dell’s PC division reported revenue of $12 billion, a marginal change from the same period last year. Of note, sales of business PCs experienced an unexpected 3% uptick, reaching $10.2 billion, defying analysts’ projections of a 2% decline.
The broader PC market had endured a tumultuous period over the last two years, marked by historic declines. However, recent data from industry analyst IDC suggests a potential reversal, with shipments ticking up by 1.5% in the first quarter of 2024, the first increase since the close of 2021.
Hopeful for a sustained recovery, PC manufacturers anticipate a resurgence in demand, buoyed by the launch of machines equipped with Microsoft Corp.’s latest Windows software iteration and hardware tailored to accommodate AI applications.
While Dell faces stiff competition in the PC sector, its primary rival, HP Inc., reported encouraging signs of a market rebound on Wednesday, propelling its shares upwards by 17% on Thursday. Like Dell, HP noted a surge in sales among corporate clients, underscoring a potential shift in market dynamics favoring enterprise buyers.
Overall, Dell’s infrastructure unit, encompassing servers, networking, and storage equipment, witnessed a robust 22% surge in total sales, reaching $9.2 billion, signaling underlying strength in its core business operations despite the setback in the AI segment.
Conclusion:
Dell’s setback in failing to meet investor expectations for its AI server business highlights the volatile nature of the technology sector. While the company has shown strength in its core infrastructure unit and witnessed unexpected growth in business PC sales, the disappointment in the AI segment underscores the importance of meeting or exceeding market expectations to sustain investor confidence and market performance.
