Dell Technologies is earning more revenue from selling AI servers, but it is growing unprofitably. Shares of Dell plummeted in Friday’s session after the company released its fiscal first-quarter earnings.
Dell posted earnings in line with better-than-expected sales for its fiscal Q1 late Thursday but disappointed investors with its current-quarter and full-year earnings outlook. The computer maker said it earned adjusted $1.27 per share, down 3% year-on-year, with sales of $22.24 bi, up 6%, in the quarter which ended May 3rd. Dell attributed the results to record sales of artificial intelligence-optimized servers.
The company said it expects adjusted earnings of $1.65 per share in the current quarter, 5% less than the year prior, on projected sales of $24 billion, 5% more. Analysts surveyed by FactSet expected an average of $1.88 a share on sales of $23.35 billion in Dell’s fiscal second quarter. For the full fiscal year, Dell said it was targeting adjusted earnings of $7.65 a share, up 7%, on sales of $95.5 billion, up 8%. Wall Street had expected earnings of $7.74 per share on revenue of $94.64 billion.
Dell’s share price plunged 17.9% to the close of 139.56 on the stock sale today. This was after a record high of 179.70 registered on Wednesday. Research analysts note that the AI server business is very competitive pricing, and Dell is after the market share. Tim Long, an analyst at Barclays, reissued an underweight rating on Dell and cut his price target to $97 from $98, citing a belief that “we believe AI server gross margin headwinds along with a lack of pull-through to the other businesses will weigh on [Dell’s] results over the next few quarters.”.
“The growth in AI server sales simply isn’t enough to offset weak sales of personal computers and traditional servers and storage gear,” he also said.
Dell also needs to improve its sales backlog for artificial intelligence servers. ” While AI backlog at $3.8 billion (up 30% quarter to quarter) is impressive, buy-side whispers were in the $4 billion to $5 billion range,” said Amit Daryanani, an analyst at Evercore ISI, in a note to clients. Still, he rates Dell stock outperforming with a price target of 165.
BofA Securities analyst Wamsi Mohan is sticking to a buy rating for Dell stock with a price target of 180. “We’re still in the early stages of AI adoption with continued strong pipeline and momentum around AI servers, where we think Dell will be able to capture higher AI margins over time,” Mohan said. He also added that Dell’s profit margins should improve with sales of AI servers moving to enterprises from cloud service providers. Dell continues to see higher attachment rates for storage and services.
Dell’s earnings highlight how the company needs help to drop revenue growth onto the bottom line, particularly in a competitive AI server market. As Dell struggles with these challenges, the tech world will hold its breath about its performance and strategic adjustments.
+ There are no comments
Add yours