Dell’s forecast for the current-quarter profit didn’t quite hit the sweet spot on Thursday, warning that the hefty costs of building AI-ready servers would chew into annual margins. This revelation sent its shares tumbling over 17% in after-hours trading.
The Round Rock, Texas-based tech giant is bracing for its adjusted gross margin rate to slip by about 150 basis points in fiscal 2025. For the current quarter, Dell predicts an adjusted profit per share of $1.65, give or take 10 cents, falling short of analysts’ average estimate of $1.84, according to LSEG data.
Demand for high-performance computing and massive data centers, driven by the generative AI boom, has sparked a rush for AI-capable servers, with Dell among the key players. However, Mikako Kitagawa, director analyst at Gartner, noted that “the margin decline mirrors the fierce pricing battles as the market hasn’t fully rebounded, and competitors are scrambling for a slice of the pie.”
Despite the setback, shipments of Dell’s AI-optimized servers surged, more than doubling to $1.7 billion, with backlog swelling over 30% to $3.8 billion, according to COO Jeff Clarke.
In a bid to stay ahead, Dell recently launched a slew of AI-powered PCs with Qualcomm processors and announced a new server featuring Nvidia’s latest chips, set to hit the market in the latter half of 2024.
Remarkably, Dell’s stock has more than doubled this year, hitting an all-time high earlier this week. For the second quarter, Dell expects revenue between $23.5 billion and $24.5 billion, topping the average estimate of $23.21 billion.
The company also boosted its fiscal 2025 revenue forecast to between $93.5 billion and $97.5 billion, up from a previous range of $91 billion to $95 billion. First-quarter revenue, ending May 3, rose 6% to $22.24 billion, ending a six-quarter losing streak, with adjusted profit aligning closely with analysts’ predictions.
Revenue for Dell’s infrastructure solutions group—covering storage, software, and servers—jumped 22% to $9.23 billion, while its client solutions group, home to PCs, remained flat.