Dell targets $15B in AI server sales this year, but it’s not enough for investors

Shares of Dell Technologies Inc. were heading lower in extended trading today after the company reported fourth-quarter sales that came in below estimates and offered a mixed revenue outlook for the current quarter.

The data center infrastructure and personal computer maker reported earnings before certain costs such as stock compensation of $2.68 per share, beating Wall Street’s target of $2.53 per share by a comfortable margin, but it let itself down in terms of revenue. Sales came to $23.9 billion in the quarter, up 7% from a year earlier but trailing the analysts’ consensus estimate of $24.55 billion by a fair distance.

Net income increased to $1.53 billion, up from $1.21 billion in the year-ago quarter.

Dell’s stock fell 2% after-hours and is now down 5% in the year to date, but that may just be a blip. It’s still up more than 50% in the last two years thanks to soaring demand for artificial intelligence servers powered by Nvidia Corp.’s graphics processing units, including its newest Blackwell chip. Dell is one of the world’s primary suppliers of Nvidia-based server systems, selling those products to companies such as Elon Musk’s xAI Corp.

Dell Chief Operating Officer Jeff Clarke (pictured) said on a call with analysts that the company had sold about $10 billion worth of AI-optimized servers in fiscal 2025, and expects that number to increase to $15 billion in the current year. So far, it has already accumulated more than $4.1 billion in AI server orders that are yet to be fulfilled.

“Our prospects for AI are strong, as we extend AI from the largest cloud service providers, into the enterprise at-scale, and out to the edge with the PC,” Clarke added.

For the current quarter, Dell is looking for sales of between $22.5 billion and $23.5 billion, slightly behind the analyst consensus of $23.59 billion. Its earnings forecast was also off, with Dell calling for $1.65 per share, trailing the Street’s estimate of $1.76.

For the full year, Dell is looking for sales of between $101 billion and $105 billion, which is more or less in line with the Street’s goal of $103.17 billion in sales. Earnings for the full year will be $9.30, Dell said, topping the Street’s $9.23 forecast.

Sales in the previous quarter were driven primarily by the company’s Infrastructure Solutions Group, which includes its server products, plus storage arrays and networking equipment. Revenue there rose 22%, to $11.35 billion, short of the Street’s target of $11.7 billion.

“The ISG business is going strong, although the transition to Blackwell was a constraint and caused some lumpiness in the quarter,” said Dave Vellante, chief analyst with SiliconANGLE’s sister market research firm theCUBE Research. “Nonetheless, I’m encouraged that ISG revenue grew 22% year-over-year, and operating profits in the division grew 44%, which shows Dell has operating leverage as it grows AI servers.”

In addition, he said, “there’s a large deal in the pipeline with xAI, which is growing the backlog and will translate into revenue in future quarters.”

The Client Solutions business, which includes personal computer sales, delivered $11.88 billion in sales, up 5% from a year earlier. Analysts had been looking for $11.98 billion.

“The client/PC business remains soft as we wait for AI PCs and refresh cycles to kick in,” Vellante noted. “I would expect that it is a second-half of calendar year 2025 story for AI PCs.”

Dell told investors that it’s increasing its annual dividend to shareholders by 18%, to $2.10 per share.

Overall, Vellante said, Dell has guided analysts to revenue growth of 8% to 10%. “A company of Dell’s size with nearly $100 billion in revenue has a lot of opportunities to apply AI internally to cut costs and its capital allocation continues to give back cash to shareholders,” he said. “Going forward, I don’t expect the enterprise AI business to peter out any time soon. If and when AI PCs kick in, that will be a big boost to cash generation and will bode well for Dell.”

Constellation Research Inc. analyst Holger Mueller said investors are likely concerned that the client computing business is still dragging, with commercial PC sales barely keeping up with inflation, and consumer PCs falling behind. Nonetheless, he said the company did extremely well to grow its profits, with earnings per share rising by almost 40% for the full year.

“If Dell’s infrastructure business keeps growing as it did in the last full year, it will soon surpass the client computing business, and that would represent a new milestone for the company,” he said. “AI demand is the main driver of this growth, but the main question is, how big will the on-premises AI bonanza be in 2025?”.

Dell’s rivals come up short

Dell wasn’t the only company to let shareholders down today, for its industry peers HP Inc. and NetApp Inc. also came up short with some of their key numbers. Both stocks were headed south in late trading.

HP’s results were decidedly mixed, with earnings coming to 74 cents per share, just shy of the Street’s 75 cent target, while revenue crept up by 2%, to $13.5 billion, topping the forecast of $13.39 billion.

For the fiscal second quarter, HP said it’s anticipating earnings of between 75 and 85 cents per share, below the Street’s estimate of 86 cents. The outlook includes a 13-cent hit related to restructuring and other charges. HP’s stock was down more than 3% in the wake of the report.

Chief Executive Enrique Lores said the PC maker is seeing strong demand for its latest “AI PCs,” which are sparking a new upgrade cycle in the industry. “I would say we see very steady and fast progression from traditional PCs to AI PCs,” he told analysts on a conference call. “The market grew 25% quarter-over-over, and we expect this growth to intensify through the rest of the year.”

HP also revealed plans to lay off more than 2,000 employees, continuing a cost-cutting campaign that has already seen more than 7,000 workers lose their jobs. Lores said the company will realize about $1.9 billion in savings through the plan, though it will be hit with restructuring charges of abouot $1.2 billion.

As for NetApp, its stock was hammered in late trading, falling more than 14% after it lowered its profit and revenue forecast for fiscal 2025, blaming the shortfall on sluggish demand for data storage services.

The company said it’s now looking for fiscal 2025 adjusted earnings of between $7.17 and $7.27 per share, down from its earlier forecast of $7.20 to $7.40 per share. It reduced its revenue forecast to a range of $6.49 billion and $6.64 billion, down from its prior estimate of $6.54 billion to $6.74 billion.

NetApp’s results for the prior quarter were disappointing too. It delivered earnings of $1.91 per share, in-line with the Street’s forecast, with revenue coming to $1.64 billion, below the $1.69 billion target.

Photo: SiliconANGLE