Dell Raises Forecasts Amid AI Server Sales Boom
Dell Technologies has elevated its annual revenue and profit predictions, driven by surging demand for its artificial intelligence-optimized servers that leverage Nvidia’s advanced chips. Despite this positive outlook, shares declined about 5% in extended trading following a third-quarter profit forecast that fell short of analysts’ expectations.
Rising Demand and Competitive Pressures
The demand for AI servers, essential for accommodating the computational requirements of AI workloads, is positively impacting companies like Dell and Super Micro Computer. However, the challenges of production costs and tough competition continue to exert pressure on profit margins.
According to the company’s updated forecasts, Dell now anticipates revenue of $20 billion in fiscal 2026 from AI server shipments, an increase from the previous estimate of $15 billion. Prominent businesses utilizing Dell’s AI servers include Elon Musk’s AI venture xAI and CoreWeave.
Strong Performance in Recent Orders
The company reported an impressive $5.6 billion in AI orders for the second quarter, with shipments reaching a record $8.2 billion. This achievement has resulted in an overall backlog of $11.7 billion, highlighting the high demand for their AI technology.
Annual Revenue Forecast Adjusted
Dell has raised its annual revenue forecast to fall between $105 billion and $109 billion, up from earlier projections of $101 billion to $105 billion. Expected adjusted earnings per share are now set at $9.55, an increase from the earlier forecast of $9.40.
For the third quarter, Dell’s revenue forecast is projected to be between $26.5 billion and $27.5 billion, surpassing analysts’ average estimate of $26.05 billion based on data compiled by LSEG. However, the adjusted profit forecast of $2.45 per share is lower than the estimated $2.55 per share.
Second Quarter Performance Metrics
In the second quarter, Dell recorded revenue of $29.78 billion, exceeding estimates of $29.17 billion. Excluding various adjustments, the company reported an adjusted profit of $2.32 per share, which slightly surpassed estimates of $2.30 per share. Despite positive revenue results, Dell’s adjusted gross margin rate fell to 18.7%, missing the estimate of 19.6%.
Growth in Key Sectors
Revenue within Dell’s infrastructure solutions group, which encompasses storage, software, and server offerings, saw a notable 44% increase. Conversely, the client solutions group—home to Dell’s PC segments—experienced modest growth of only 1%.
A strong refresh cycle for PCs is anticipated following Microsoft’s end of support for Windows 10 in October. With around half of all PCs still operating on Windows 10, many are expected to require replacement, as upgrades are not feasible.
Overall, Dell’s proactive adjustments to its forecasts reflect the dynamic shifts within the AI marketplace and the company’s strategic responses amidst competitive pressures.