Dell Falls After AI Server Sales Fail to Impress Investors

(Bloomberg) — Dell Technologies Inc. fell about 18% in extended trading after its first revenue increase since 2022 wasn’t enough to impress investors with high expectations for the company’s AI server business.

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Sales increased 6.3% to $22.2 billion in the period ended May 3, the Round Rock, Texas-based company said Thursday in a statement. Analysts, on average, estimated $21.6 billion. Profit, excluding some items, was $1.27 a share, compared with the 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 statement. The backlog for those machines increased more than 30% quarter-over-quarter to $3.8 billion, he added.

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

The company raised its revenue outlook for the fiscal year ending in February 2025 to a range of $93.5 billion to $97.5 billion, an 8% increase at the mid-point, which would top analysts’ average estimate of a 7% gain. Adjusted profit will be about $7.65 a share, compared with the $7.70 average estimate.

But that excitement around AI demand for Dell’s machines 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.

The shares dropped to a low of $138.15 in extended trading after closing at $169.92 in New York. Dell’s stock has more than tripled over the past 12 months as investors have viewed the hardware maker as a beneficiary of demand for artificial intelligence. Large corporations increasingly need high-powered servers to train and run demanding generative AI tasks, which are sold by Dell and few other companies.

“Results weren’t bad, but expectations were very high, and the numbers weren’t strong enough to spur further near-term upside,” wrote analysts at Vital Knowledge.

For its better-known business of selling personal computers, Dell reported $12 billion in revenue, little changed from the same period a year earlier. Sales of business PCs increased 3% to $10.2 billion, surprising analysts who expected a 2% drop.

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The PC market had seen a historic decline over the last two years after many consumers, businesses and schools purchased laptops in the early months of the pandemic. In the first quarter, shipments picked up 1.5% — the first increase since the end of 2021 — industry analyst IDC said in April.

PC-makers have been hopeful those numbers signaled the end of the slump 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 handle artificial intelligence tools.

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

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

(Updates with outlook in the fifth paragraph.)

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