Dell Shares Drop as Weak Guidance Overshadows Record AI-Fueled Revenue
The tech giant's stock fell over 4% in after-hours trading despite beating Q2 estimates, as its Q3 forecast disappointed investors.
Dell Technologies Inc. shares fell more than 4% in after-hours trading on Thursday, as the company's weaker-than-expected third-quarter forecast overshadowed a record-setting performance driven by surging demand for its artificial intelligence servers.
For its fiscal second quarter, Dell reported a record $29.8 billion in revenue, a 19% increase from the prior year, narrowly beating analyst expectations. Adjusted earnings per share came in at $2.32, also ahead of consensus estimates. The strong results were propelled by the company's Infrastructure Solutions Group (ISG), which saw a 69% year-over-year jump in its Servers and Networking revenue to $12.9 billion.
Highlighting the robust demand for AI hardware, Dell revealed it shipped $8.2 billion worth of AI-optimized servers in the quarter alone, exceeding the total for all of the previous fiscal year. Buoyed by this momentum, the company raised its full-year revenue guidance to a range of $105 billion to $109 billion.
Despite the positive results and bullish outlook on its AI business, investors focused on the company's guidance for the upcoming quarter. Dell projected adjusted earnings of $2.45 per share on roughly $27.0 billion in revenue. The earnings forecast fell short of the $2.55 per share that analysts polled by FactSet had anticipated, triggering the sell-off.
The market's reaction highlights the immense pressure on technology companies to deliver flawless results amid the current AI investment frenzy. While Dell's AI server business is booming, its legacy personal computer division remains a drag. The Client Solutions Group, which includes PCs, posted revenue of $12.5 billion, up only 1% from a year earlier and below analyst forecasts.
"Demand for our AI solutions continues to be exceptional," Vice Chairman Jeff Clarke said in a statement, noting that the company now expects to ship $20 billion in AI servers this fiscal year. However, the softer guidance, attributed partly to seasonal factors and a muted performance in the PC segment, was enough to sour investor sentiment and reverse the stock's initial post-earnings gains.