(Bloomberg) — Dell Technologies Inc.’s shares fell the most since returning to the stock market in 2018, as 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.
But excitement over AI demand for Dell's machines has boosted expectations for Thursday's results. The company's shares fell 18% to $139.56 at the close of trading in New York on Friday, its biggest one-day drop since Dell went public again in December 2018.
Dell's 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 companies increasingly need high-performance servers to train and run demanding generative AI tasks, and such servers are sold by Dell and several other companies.
“Dell's first quarter '25 results were disappointing relative to sky-high expectations,” wrote Sanford Bernstein analyst Toni Sacconaghi, noting that a decline in adjusted operating margins in the quarter resurfaced “concerns that AI servers are being sold at near-zero margins.”
Dell Chief Financial Officer Yvonne McGill said on a conference call after the earnings announcement 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.
Still, the outlook means AI server sales will remain relatively flat through the rest of the year, “calling into question its near-term competitiveness,” Bloomberg Intelligence analyst Woo Jin Ho 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.
(Updates with closing prices in fourth paragraph.)
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