Dell Technologies Inc. (NYSE:DELL) experienced its largest decline in four years on Friday, with shares dropping as much as 19%, after its first revenue increase since 2022 failed to meet high investor expectations for its AI server business.
The Round Rock, Texas-based company reported a 6.3% rise in sales to $22.2 billion for the period ending May 3, surpassing the average analyst estimate of $21.6 billion. Adjusted profit was $1.27 per share, exceeding the average projection of $1.23.
Revenue from Dell’s AI-optimized servers more than doubled from the previous quarter to $1.7 billion, according to Chief Operating Officer Jeff Clarke. The backlog for these machines grew by over 30% quarter-over-quarter to $3.8 billion.
Despite these gains, investor enthusiasm around AI demand led to high expectations that Thursday’s results did not fully meet. Dell’s stock had more than tripled over the past year as it was seen as a key beneficiary of the growing need for high-powered servers to support artificial intelligence tasks.
“Relative to very high expectations, Dell’s Q1 results were disappointing,” noted Sanford Bernstein analyst Toni Sacconaghi, highlighting that a decrease in adjusted operating margin raised concerns that AI servers are being sold at very low margins.
Chief Financial Officer Yvonne McGill indicated that Dell expects continued momentum from AI demand throughout the year. The company raised its revenue forecast for the fiscal year ending February 2025 to a range of $93.5 billion to $97.5 billion, an 8% increase at the mid-point, exceeding analysts’ average estimate of a 7% gain. Adjusted profit is projected to be around $7.65 per share, compared with the $7.70 average estimate.
However, the outlook suggests relatively flat AI server sales for the remainder of the year, which could impact near-term competitiveness, according to Bloomberg Intelligence analyst Woo Jin Ho.
For its personal computer business, Dell reported $12 billion in revenue, consistent with the same period a year earlier. Sales of business PCs increased by 3% to $10.2 billion, surprising analysts who had anticipated a 2% decline. The PC market saw a 1.5% increase in shipments in the first quarter, the first rise since the end of 2021, according to industry analyst IDC.
PC-makers, including Dell’s main competitor HP Inc. (NYSE:HPQ), are hopeful that the recent uptick in sales signals the end of the market slump. HP reported signs of recovery in the computer market, sending its shares up 17% on Thursday, with a notable increase in sales among business customers.
Total sales at Dell’s infrastructure unit, which includes servers, networking, and storage equipment, rose 22% to $9.2 billion.
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