Dell Falls After AI Server Sales Fail to Impress Investors

Dell Falls After AI Server Sales Fail to Impress Investors

(Bloomberg) — Dell Technologies Inc. fell about 13% in premarket trading Friday after its first revenue increase since 2022 wasn’t enough to impress investors with high expectations for the company’s server business. Enterprise AI.

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Sales rose 6.3% to $22.2 billion in the period ended May 3, the Round Rock, Texas-based company said in a statement Thursday. Analysts on average estimated $21.6 billion. Earnings, excluding certain items, came to $1.27 per share, compared with an average projection of $1.23.

Revenue from Dell’s powerful servers equipped to handle artificial intelligence tasks more than doubled from the previous quarter to $1.7 billion, Chief Operating Officer Jeff Clarke said in the press release. The backlog for these machines increased more than 30% quarter over quarter to $3.8 billion, he added.

Dell expects AI demand momentum to continue throughout the year, Chief Financial Officer Yvonne McGill said on a conference call after the results were released.

The company raised its revenue guidance for the fiscal year ending February 2025 to a range of $93.5 billion to $97.5 billion, an 8% increase at the midpoint, which would beat the estimate analyst average of a gain of 7%. Adjusted earnings will be about $7.65 per share, compared with the average estimate of $7.70.

But this excitement around AI demand for Dell machines has raised expectations for Thursday’s results, Woo Jin Ho, an analyst at Bloomberg Intelligence, said in an interview on Bloomberg Television after the report was released.

Shares fell about 13% in premarket trading Friday, after closing at $169.92 in New York. If the premarket decline continues, Dell is expected to see its biggest decline since August 26, 2022. Dell’s stock has more than tripled in the past 12 months as investors view the hardware maker as a beneficiary of demand of artificial intelligence. Large companies increasingly need high-powered servers to train and run demanding generative AI tasks, which are sold by Dell and a few other companies.

“The results weren’t bad, but expectations were very high and the numbers weren’t strong enough to spur further upside in the short term,” Vital Knowledge analysts wrote.

For its better-known business of selling personal computers, Dell reported revenue of $12 billion, little change from the same period a year earlier. Business computer sales rose 3% to $10.2 billion, surprising analysts who had expected a 2% decline.

The PC market has seen a historic decline over the past two years after many consumers, businesses and schools purchased laptops during the early months of the pandemic. In the first quarter, shipments rose 1.5% – the first increase since late 2021, industry analyst IDC said in April.

PC makers had hoped the figures would mark the end of the crisis and that growth would accelerate in 2024 with the launch of machines equipped with a new version of Microsoft Corp’s Windows software. as well as hardware equipped with chips to manage artificial intelligence. tools.

Dell’s main computer competitor, HP Inc., reported signs of a recovery in the computer market on Wednesday, sending its shares up 17% on Thursday. Like Dell, HP reported increased sales among its business customers rather than consumers.

Total sales of Dell’s infrastructure unit, which includes servers and networking and storage equipment, jumped 22% to $9.2 billion.

(Updated with premarket actions in first and seventh paragraphs)

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