The AI-server Boom Continues to Gain Steam at Dell, but Overall Revenue Falls Short

Dell Technologies Inc. continues to experience robust demand for its artificial-intelligence (AI) servers, although the company’s overall revenue for the fiscal third quarter fell slightly below analysts’ expectations. On Tuesday, the company reported shipping $2.9 billion worth of AI servers during the quarter, while its backlog swelled to $4.5 billion, up from $3.8 billion in the previous quarter.

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Evercore ISI analyst Amit Daryanani had forecast Dell’s AI server pipeline to fall between the mid-$3 billion and low-$4 billion range, making the backlog’s growth a notable achievement. According to Dell, the pipeline for AI servers expanded by 50% during the quarter, signaling strong momentum in this segment.

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“AI is a robust opportunity for us with no signs of slowing down,” Jeff Clarke, Dell’s vice chairman and chief operating officer, stated in a press release.

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Despite this positive news, Dell’s stock fell 11% in after-hours trading on Tuesday.

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Dell’s AI servers are part of its infrastructure solutions group, which generated $11.4 billion in revenue during the quarter, a 34% year-over-year increase. This figure slightly exceeded analysts’ expectations of $11.3 billion, according to FactSet.

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The segment also saw notable improvement in its operating margin, which climbed to 13.3%, compared to 11.0% in the second quarter and 8.0% in the first quarter. Dell attributed the margin expansion to its efforts in prioritizing proprietary intellectual property over third-party solutions, enforcing stricter pricing strategies, and enhancing the content offerings in its traditional server business.

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Demand for Dell’s traditional servers also saw double-digit growth, contributing to the group’s overall success.

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While Dell’s infrastructure solutions group outperformed, its client solutions group, which includes personal computers (PCs), faced headwinds. Revenue in this segment fell slightly to $12.1 billion, a 1% decline year-over-year and below the $12.4 billion analysts had anticipated.

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Within the client solutions group, commercial revenue increased by 3%, but consumer revenue dropped significantly by 18%. Enterprise customers showed interest in updating their aging fleets of PCs, but others opted to delay purchases, citing plans to wait for new AI-enhanced PCs expected to launch early next year.

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Overall Revenue and Earnings

Dell’s total revenue for the quarter grew by 10% year-over-year to $24.4 billion, falling short of the consensus estimate of $24.7 billion.

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The company reported net income of $1.1 billion, or $1.58 per share, compared to $1.0 billion, or $1.36 per share, in the same period a year ago. On an adjusted basis, Dell earned $2.15 per share, exceeding analysts’ expectations of $2.06.

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Outlook and Industry Implications

The surging demand for AI servers underscores Dell’s growing focus on this burgeoning market. As companies increasingly adopt AI technologies, Dell’s ability to deliver innovative solutions has positioned it well for continued growth. However, challenges in the consumer PC market and broader economic uncertainties may weigh on its overall performance.

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Dell’s progress in improving margins and diversifying its revenue streams highlights its strategic pivot toward higher-margin products and services, especially within the infrastructure segment. The success of these initiatives will likely play a critical role in driving the company’s long-term financial health.

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For now, the contrasting performances of Dell’s business segments illustrate the shifting priorities of enterprise and consumer markets. As enterprises embrace AI capabilities, Dell appears poised to capitalize on this trend, though sustained momentum in other segments remains key to balancing its overall growth trajectory.

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