Dell Technologies Inc. witnessed a remarkable surge of over 15% in late trading following its report of better-than-anticipated sales and profit. The growth was fueled by the escalating demand for information technology equipment, particularly high-performance servers tailored for handling artificial intelligence (AI) workloads. Although renowned for its PC business, Dell garnered significant investor attention over the past year due to a surge in interest for its robust servers essential for AI operations.
In the fiscal fourth quarter, Dell’s infrastructure unit, encompassing servers, reported revenue of $9.33 billion, surpassing expectations. Despite a 6% year-on-year decline in total revenue for the unit, a sequential sales increase was attributed primarily to AI-optimized servers, as stated by Dell on Thursday.
Jeff Clarke, Dell’s Chief Operating Officer, expressed optimism about the company’s position in the AI landscape, emphasizing its capability to assist customers in constructing GenAI solutions tailored to meet performance, cost, and security requisites. Clarke highlighted a backlog of $2.9 billion for AI servers at the end of the quarter, indicating significant ongoing demand.
During a conference call, Clarke revealed that Dell shipped $800 million worth of AI-optimized servers in the quarter. However, he acknowledged the industry-wide challenge posed by the scarcity of advanced computer chips, which continues to constrain supply despite some improvement in lead times.
Following the news, Dell’s shares reached a high of $113.34 in extended trading, marking a substantial increase from the New York closing price of $94.66. The stock has more than doubled over the past 12 months, reflecting investor enthusiasm regarding the pivotal role of servers in an AI-driven purchasing cycle.
Dell provided a revenue forecast of $91 billion to $95 billion for the fiscal year ending in February 2025, surpassing analysts’ average estimate. Chief Financial Officer Yvonne McGill projected a profit, excluding certain items, of $7.50 per share, with analysts’ estimates averaging $7.11 per share.
McGill anticipated a “low single digits” increase in revenue for the computer unit and a “mid-teens” growth for the infrastructure unit, driven by AI-related demand.
In contrast, Hewlett Packard Enterprise revised its sales outlook downward for the current year due to insufficient GPUs, impacting its ability to deliver high-performance servers. This led to a decline of about 4% in its shares during extended trading.
Dell also announced a 20% increase in its annual dividend to $1.78 per share, with a quarterly dividend of 44.5 cents per share payable on May 3 to investors as of April 23.
Despite an 11% decline in revenue to $22.3 billion in the quarter, Dell’s profit, excluding certain items, stood at $2.20 per share, surpassing analysts’ expectations. Sales of personal computers declined 12% to $11.7 billion, reflecting the ongoing softness in the PC market, although Clarke anticipates a turnaround later in 2024 with the release of AI-oriented hardware and Microsoft Corp.’s Windows 11 software.
Dell’s termination of its reseller agreement with VMware, except for embedded tools, was also noted. This move follows Dell’s decision to end most VMware product reselling, now owned by Broadcom Inc.
In conclusion, Dell’s robust performance in server sales, particularly in the AI segment, has fueled investor confidence, leading to a significant surge in its stock value and optimistic revenue forecasts for the coming fiscal year.
