(Bloomberg) — Dell Technologies Inc. shares fell about 13% in premarket trading on Friday after the company’s first revenue increase since 2022 failed to impress investors with high hopes for its AI server business.
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The Round Rock, Texas-based company said in a statement on Thursday that sales rose 6.3 percent to $22.2 billion for the quarter ended May 3. Analysts' average estimate was $21.6 billion. Earnings per share, excluding certain items, were $1.27, beating the average estimate of $1.23.
Sales of the company's powerful servers, which are capable of handling artificial intelligence tasks, more than doubled from last quarter to $1.7 billion, Dell Chief Operating Officer Jeff Clark said in a statement. He added that the backlog of orders for these machines grew more than 30% from the previous quarter, to $3.8 billion.
Dell Chief Financial Officer Yvonne McGill said on a conference call after the earnings release that the company expects momentum in AI demand to continue through the year.
The company raised its revenue outlook for the fiscal year ending in February 2025 to a range of $93.5 billion to $97.5 billion, an 8% increase at the midpoint and above the 7% increase that analysts had expected on average. Adjusted earnings were about $7.65 a share, beating the average estimate of $7.70.
But excitement over AI demand for Dell's machines has raised expectations for Thursday's results, Bloomberg Intelligence analyst Woo Jin-ho said in an interview on Bloomberg TV after the report was released.
Dell shares fell about 13% in premarket trading on Friday after closing at $169.92 in New York. If the decline in premarket trading continues, Dell will suffer its biggest drop since Aug. 26, 2022. Dell shares have more than tripled in the past 12 months as investors see the hardware maker as a beneficiary of demand for artificial intelligence. Large enterprises increasingly need high-performance servers to train and run demanding generative AI tasks that Dell and several other companies sell.
“The results were not bad, but expectations were so high that the numbers were not strong enough to spur further short-term gains,” Vital Knowledge analysts wrote.
Dell reported that its better-known PC sales business had revenue of $12 billion, little changed from the same period a year ago. Business PC sales rose 3 percent to $10.2 billion, surprising analysts who had expected a 2 percent decline.
The PC market has seen historic declines over the past two years since many consumers, businesses and schools bought laptops in the early months of the pandemic. Industry analyst IDC said in April that first-quarter shipments rose 1.5%, the first increase since the end of 2021.
PC makers hope the figures signal an end to the recession and that growth will accelerate in 2024 thanks to the launch of machines running Microsoft's new version of Windows software and hardware with chips that process artificial intelligence tools.
Dell's biggest PC rival, HP, said Wednesday that the computer market is showing signs of recovery, sending its stock up 17 percent on Thursday. Like Dell, HP said it was seeing sales growth among business customers rather than consumers.
Total sales for Dell's infrastructure division, which includes servers, networking and storage equipment, rose 22 percent to $9.2 billion.
(Adds share of premarket trading in first and seventh paragraphs)
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