Dell’s stock rises on AI server demand, but HP slides after announcing layoffs and weak guidance – News

Shares of the personal computer makers Dell Technologies Inc. and HP Inc. were heading in opposite directions in the after-hours market today after offering contrasting guidance for the next three months.

In the case of Dell, which is still led by its namesake founder Michael Dell (pictured) investors looked bullish after the company forecast stronger-than-expected earnings and revenue thanks to what it said is strong demand for artificial intelligence servers. HP, on the other hand, offered a forecast that came in below Wall Street’s estimates and said it’s planning to lay off anywhere between 4,000 and 6,000 people over the next two years, accounting for up to 10% of its total workforce.

Dell’s results in the quarter just gone weren’t great. In fact, they were mixed, with the company missing the Street’s targets on revenue. The company reported third-quarter earnings before certain costs such as stock compensation of $2.59 per share, beating the consensus estimate of $2.47, but it could only deliver revenue of $27.01 billion, up 11% from a year ago but shy of the $27.13 billion estimate. All told, Dell delivered $1.54 billion in net income, rising from $1.17 billion in the same quarter last year.

For the current quarter, things are looking better though, as Dell is expecting around $31.5 billion in total sales at the midpoint of its forecast range, well ahead of the Street’s $27.59 billion target. The company is also forecasting healthy earnings of around $3.50 per share, surpassing the $3.21 forecast.

AI is the primary reason for Dell’s bullish forecast. The company said it’s raising its overall revenue forecast for AI server shipments to $25 billion, up from an earlier forecast of just $20 billion. It also boosted its full-year revenue target to $111.7 billion, up from $107 billion. Wall Street reacted positively to the report, with Dell’s stock gaining more than 3% in after-hours trading.

Dell has in fact become a major bellwether for the AI infrastructure market and its overall health, as it’s one of the top manufacturers of server systems featuring Nvidia Corp.’s powerful graphics processing units. Most of its customers are large enterprises, government agencies and so-called “neocloud” providers such as CoreWeave Inc. It sells fewer servers to the big cloud infrastructure providers such as Amazon Web Services Inc. and Google LLC, also known as “hyperscalers”, which often buy GPUs directly from Nvidia.

Still, there’s an enormous market for Dell’s servers, and it said it’s expecting to ship around $9.4 billion worth in the current quarter. But that doesn’t include a recent deal it announced that will see it ship Nvidia GB300-based systems to a neocloud company called Iren Ltd., which subsequently plans to rent their capacity to Microsoft Corp.

Dell’s server business is part of its broader Infrastructure Solutions Group, which delivered $14.11 billion in sales during the previous quarter, in-line with the Street’s expectations. Within that segment, server sales and networking parts generated $10.1 billion in sales, up 37% on an annual basis, with $5.6 billion spent on AI servers. The company also sold $4 billion worth of storage systems during the quarter.

“AI momentum is accelerating in the second half of the year,” said Dell Chief Operating Officer Jeff Clarke in a press release. “Dell is winning in AI because of our unique ability to engineer bespoke high-performance solutions, rapidly deploy large, complex clusters, and provide global support.”

Dell’s other main business is of course PCs and laptops. They fall in the company’s Client Solutions Group, which reported revenue of $12.48 billion in the quarter, up 3% from a year earlier but trailing the Street’s forecast of $12.65 billion.

Clarke said on a conference call with analysts that the company expects PC and laptop sales to get a boost from Microsoft’s decision to end support for Windows 10 last month, as many enterprises have only just started refreshing their portfolios as they scramble to upgrade to Windows 11.

AI automation drive and rising costs prompt HP layoffs

As for HP, the main focus of investors wasn’t its results, but rather its glum forecast and the fact that the company intends to lay off so many thousands of workers.

The company reported fourth-quarter earnings of 93 cents per share on sales of $14.64 billion, edging past the Street’s targets of 92 cents and $14.48 billion in revenue, respectively. Despite the results, HP’s revenue only gained 4% from a year earlier, while net income rose slightly to $795 million in the quarter, from $763 million one year ago.

The PC and printer maker’s snail’s pace revenue growth was a concern, and equally alarming for investors was the forecast for the first quarter of fiscal 2026. HP said it’s looking for earnings of between 73 cents and 81 cents per share, short of the consensus estimate of 79 cents. For the full year, the company sees earnings at between $2.90 and $3.20 per share, trailing the analyst’s target of $3.33. The company didn’t issue any revenue guidance.

In a statement, HP said its outlook reflects the additional costs that stem from current U.S. trade-related regulations and “associated mitigations” implemented by the company.

HP Chief Executive Enrique Lores (pictured right) tried to put a brave face on what is a very glum picture, saying the results reinforce the power of its portfolio and the strength of the company’s teams. However, investors and analysts were much more interested in hearing about the reasons behind the company’s decision to lay off so many staff. Lores said he expects the headcount reduction to be completed by the end of the company’s fiscal 2028 year – two years from now, so it’s going to be a relatively slow process. It will help the company to realize savings of at least $1 billion in its annualized gross run rate by that time. However, it will incur approximately $650 million in charges, with a $250 million hit expected in fiscal 2026.

Lores said the restructuring plan is part of an initiative that will see the company adopt more AI automation to try and accelerate product and software development. It’s planning to automate some customer support services, as well as many of its internal business processes. “We really think this is a unique opportunity we cannot miss to really continue to transform the company and continue to be competitive for the next 10, 20 years,” he told analysts on a call. “I think any work is going to be impacted by AI, and we need to take advantage of it as a company.”

The layoffs come at a time when HP is facing significantly higher costs in its PC business, due to surging demand for chips in the AI data center industry driving up the price of memory chips. “Memory costs are currently 15 to 18% of the cost of a typical PC, and while an increase was expected, its rate has accelerated in the last few weeks,” Lores said.

To counter this, Lores said the company will increase the price of many of its PCs and laptops and work with some lower-cost suppliers on ways to reduce the memory configuration of their products to offset some of these costs. However, the company still expects to see a net headwind of around 30 cents per share in the current fiscal year, Lores stated. “It is a very significant number, and this is net of all the actions that we are already putting in place,” he added. However, the company’s efforts weren’t enough to satisfy investors, and its stock fell more than 6% in extended trading.

During the previous quarter, HP’s personal systems unit, which covers laptops and desktop PCs, delivered $10.35 billion in revenue, up 8% and above the analyst forecast of $10.15 billion. Lores said on the call that the company expects to see sales improve following the end of support for Windows 10, explaining that this will prompt a lot of businesses to upgrade and buy new PCs. Currently, only around 60% of HP’s installed base has moved to Windows 11, the CEO pointed out.

HP’s other main business is printers, which delivered $4.3 billion in sales during the quarter, down 4% from a year ago and just below the Street’s forecast. The company explained that it’s dealing with a competitive pricing environment that has put off a lot of customers from purchasing new models.

As of Tuesday’s market close, HP’s stock is now down 27% in the year to date, while Dell is up 7% over the same timeframe. In comparison, the S&P 500 Index has gained 15% this year.

Photos: News and HP Inc.