Soft outlook weighs on Dell’s stock despite soaring AI server sales – News

Dell Technologies Inc. posted strong second-quarter financial results today, but even though it beat expectations on earnings and revenue, its stock was heading lower on soft guidance for the current quarter.

The company reported earnings before certain costs such as stock compensation of $2.32 per share, sneaking past Wall Street’s target of $2.30 per share, while revenue jumped 19%, to $29.78 billion, ahead of the $29.17 billion estimate.

Dell’s operating income rose even more, up 27% from the same period one year earlier, to $1.8 billion, while net income rose 32%, to $1.164 billion.

The maker of personal computers, data center servers and storage arrays also raised its full-year outlook, saying it’s now looking for earnings of $9.55 per share and revenue of $107 billion at the midpoints of its ranges, topping the Street’s targets of $9.38 per share and $104.6 billion in revenue.

However, Dell’s investors were dismayed by a somewhat glum forecast for the current quarter. Dell said it anticipates earnings of $2.45 per share at the midpoint, falling short of the Street’s forecast of $2.55 per share. The revenue forecast was better, at least, with Dell guiding for $27 billion, ahead of the analyst’s consensus estimate of $26.1 billion.

Dell explained that the lower earnings forecast results from the fact that many of its remaining profits this year will come in the fourth quarter, a result of seasonality, especially in its storage business. But investors could not hide their disappointment, and Dell’s stock slid more than 5% in extended trading.

Dell’s impressive revenue increase in the prior quarter was primarily driven by its Infrastructure Solutions business, which includes sales of servers, storage and networking gear. It generated revenue of $12.9 billion, up 69% from a year earlier.

This growth stems from artificial intelligence. Dell is one of Nvidia Corp.’s major customers, buying millions of graphics processing units that are packed into AI servers that it then sells to customers such as Amazon Web Services Inc., Coreweave Inc. and Elon Musk’s xAI Corp. Rising demand for AI servers that can handle the enhanced computational needs of AI models has benefited Dell immensely, along with other server makers such as Super Micro Computer Inc. and Hewlett Packard Enterprise Co.

Dell Vice Chairman and Chief Operating Officer Jeff Clarke (pictured) said the company has shipped more than $10 billion worth of AI servers in the first half of fiscal 2025, surpassing the total number it shipped in the whole of the previous year. “This helped deliver another record revenue quarter in our Servers and Networking business, which grew 69%,” Clarke said. “Demand for our AI solutions continues to be exceptional, and we’re raising our AI server shipment guidance for fiscal 2026 to $20 billion.”

The growth of AI server sales helped to mask the fact that not all is well in Dell’s infrastructure business, as storage revenue declined 3% in the quarter, to $3.86 billion, missing the Street’s target of $4.1 billion.

Dave Vellante, founder and chief analyst of News Media’s sister organization theCUBE Research, said it’s almost always the case with Dell that one or two parts of its vast portfolio prosper, while the other segments chug along. “In this case, storage and PCs continued to show softness, but the AI server momentum powered the income statement,” he said. “Notably, Dell’s gross margins continue to be under pressure, but they make it up in AI server volume. And it allows the company to throw off plenty of cash that it mostly returns to shareholders.”

Constellation Research Inc. analyst Holger Mueller said Dell has an iron grip on the server market already as one of the few options available for on-premises workloads, and so it’s no surprise that it’s making such rapid progress in on-premises AI as well. “Dell’s AI server revenue has grown from zero to a projected $20 billion by the end of the current fiscal year, and this shows that many of its customers are looking to replace traditional servers with AI servers,” he said.

Revenue from the Client Solutions group, which includes PC sales, inched up just 1% from a year earlier to $12.5 billion. The unit used to be Dell’s biggest, but it was surpassed earlier this year by the infrastructure group.

PC sales have been held back somewhat by U.S. President Donald Trump’s constantly shifting trade policies, creating uncertainty in the market. However, Dell has reason to be optimistic that PC sales could soon increase, with back-to-school sales now in full swing in the U.S. and Microsoft Corp. set to cut off support for Windows 10 in October. When that happens, Windows 10 PCs will no longer get regular security updates, which should prompt many businesses and consumers to invest in newer devices, potentially giving Dell a boost in the months to come.

“Investors are increasingly confident in Dell’s ability to deliver what it says it will do, and despite its lower margin profile, its consistent performance, cash generation and conservative cost management make it an attractive way to play the AI trade,” Vellante said.

During the quarter, Dell hosted its annual customer conference, Dell Technologies World 2025, where it showcased its evolving platform vision for enterprise computing in the era of AI, as well as its latest innovations in server, storage and networking hardware.

Dell said it spent more than $1.3 billion on share repurchases and dividends to investors during the quarter.

Despite today’s after-hours slump, Dell’s stock is still up 16% in the year to date, surpassing the broader S&P 500 index, which has gained just over 10% in the same period.

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