Dell Jumps on Server Sales Fueled by Excitement for AI Work

Dell Technologies headquarters in Round Rock, Texas, US, on Sunday, Nov. 26, 2023. Dell Technologies Inc. is scheduled to release earnings figures on November 30.

(Bloomberg) — Dell Technologies Inc. gained more than 15% in late trading after reporting better-than-expected sales and profit fueled by demand for information technology equipment to handle artificial intelligence work.

Known for its PC business, Dell has attracted investor attention over the last year due to a spike in interest for its high-powered servers needed to run AI workloads. The company’s infrastructure unit, which includes servers, reported revenue of $9.33 billion in the fiscal fourth quarter, topping estimates. A sequential increase in sales from the previous period was “driven primarily by AI-optimized servers,” Dell said Thursday, though the unit’s total revenue declined 6% from the same quarter a year earlier.

“We’ve just started to touch the AI opportunities ahead of us, and we believe Dell is uniquely positioned with our broad portfolio to help customers build GenAI solutions that meet performance, cost and security requirements,” Chief Operating Officer Jeff Clarke said in a statement, referring to generative AI. The backlog for AI servers was $2.9 billion at the end of the period on Feb. 2, he said.

Dell shipped $800 million in AI-optimized servers in the quarter, Clarke said in remarks prepared for a conference call on the results. Like many in the industry, however, the business is being held back by the availability of advanced computer chips, Clarke added. Demand continues to outpace supply, “though we are seeing H100 lead times improving,” referring to market-leading Nvidia Corp.’s chip.

The shares hit a high of $113.34 in extended trading after closing at $94.66 in New York. The stock has more than doubled over the last 12 months amid investor excitement about the role of servers in an AI-driven purchasing cycle.

What Bloomberg Intelligence Says

Strength in Dell’s storage segment helped to mitigate a modest drag on its PC results, leading to modest upside to sales. Though the company noted healthy AI-server demand, which led to sequential growth, it may have offset sustained softness in general server demand. AI-server momentum remains strong, with orders expanding 40% and backlog at $2.9 billion vs. $1.6 billion in 3Q.

— Woo Jin Ho, senior industry analyst

Dell gave a revenue forecast of $91 billion to $95 billion in the fiscal year ending in February 2025, compared with an average estimate of $92.1 billion. Profit, excluding some items, will be $7.50 a share, plus or minus 25 cents, Chief Financial Officer Yvonne McGill said on a conference call after the results. Analysts, on average, estimated $7.11.

Computer unit revenue should increase in the “low single digits” while the infrastructure unit will grow “in the mid-teens fueled by AI,” McGill said.

Hewlett Packard Enterprise, which competes with Dell in the server business, reduced its sales outlook for the current year, in part because the company said it couldn’t get enough GPUs to deliver high-powered servers. The shares declined about 4% in extended trading.

Dell also increased its annual dividend 20% to $1.78 per share. A quarterly dividend of 44.5 cents a share will be payable May 3 to investors as of April 23. Other tech companies including Salesforce Inc. and Meta Platforms Inc. recently announced new dividends.

In the quarter, revenue declined 11% to $22.3 billion, the Round Rock, Texas-based company said in a statement. That’s slightly ahead of the $22.2 billion expected by analysts. Profit, excluding some items, was $2.20 per share. Analysts, on average, projected $1.72, according to data compiled by Bloomberg.

Sales of personal computers declined 12% to $11.7 billion, steeper than the 10% drop anticipated by analysts, reflecting an ongoing slump in the PC market. Commercial sales fell 11% to $9.56 billion while consumer revenue plunged 19% to $2.15 billion.

“In the near-term, the PC market is still soft and we expect recovery to push into the second half as enterprise and large customers remain cautious with their spend,” Clarke said. A cycle of new PC purchases should begin as the current stock ages and computers tied to Microsoft Corp.’s Windows 11 software and AI-oriented hardware are released, he added.

On Wednesday, PC competitor HP Inc. also missed analyst estimates for computer sales, saying that demand would take longer to recover. While the market has gone through a downturn “unparalleled in the industry’s recorded history,” the market is poised to turn around later in 2024, research firm IDC wrote last month in a report.

In January, Dell announced it terminated its reseller agreement with VMware, which is now owned by Broadcom Inc. Dell no longer re-sells most VMware products, except for embedded tools like VxRail and Carbon Black, a spokesperson said.

(Updates with Hewlett Packard Enterprise results in the eighth paragraph.)

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