Dell Technologies Inc. headed for its biggest gain in six months following a robust financial report, surpassing sales and profit expectations.
The upswing was attributed to increased demand for information technology equipment, particularly for handling artificial intelligence work.
While Dell has long been recognized for its PC business, it has recently garnered increased investor attention due to a surge in interest in its high-powered servers essential for AI workloads.
In the fiscal fourth quarter, the company’s infrastructure unit, including servers, posted revenue of $9.33 billion, exceeding projections. The notable increase in sales from the previous period was “driven primarily by AI-optimized servers.”
Shares rose 21% in premarket trading on Friday, March 1. If the gain holds, it would be Dell’s biggest win since September 1, 2023.
The stock had more than doubled over the last 12 months amid investor confidence about the role of servers in an AI-driven purchasing cycle.
Chief Operating Officer, Jeff Clarke said in a statement “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,” referring to generative AI.
According to Clarke, the backlog for AI servers reached $2.9 billion by the end of February 2, 2024.
He mentioned in a statement prepared for a conference call about the results that Dell managed to ship $800 million worth of AI-optimized servers during the quarter.
Chip Challenges Persist Amid Dell’s Optimistic Outlook and Growth
However, Clarke noted that the industry, including Dell, is still facing challenges due to the limited availability of advanced computer chips.
He highlighted that the demand for these chips surpasses the current supply, though there is some improvement in lead times for the H100, which is a reference to Nvidia Corp.’s market-leading chip.
During a conference call following the results, Chief Financial Officer Yvonne McGill provided Dell’s revenue forecast for the fiscal year ending in February 2025.
The company expects revenue to fall within the range of $91 billion to $95 billion, contrasting with the average estimate of $92.1 billion among analysts.
Regarding profit, excluding certain items, McGill projected it to be $7.50 per share, with a potential deviation of plus or minus 25 cents. This forecast also differs from the analysts’ average estimate of $7.11 per share.
Furthermore, McGill said computer unit revenue should increase in the “low single digits” while the infrastructure unit will grow “in the mid-teens fueled by AI.”
Dell also increased its annual dividend by 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 Meta Platforms Inc. and Salesforce Inc. recently announced new dividends.
However, Hewlett Packard Enterprise, a rival of Dell in the server business, reduced its sales forecast for the current year, in part because the company said it couldn’t get enough GPUs to deliver high-powered servers.
The Round Rock, Texas-based company reported a decline in revenue of 11% to $22.3 billion for the quarter, slightly surpassing analysts’ expectations of $22.2 billion.
Profit, excluding certain items, stood at $2.20 per share, exceeding analysts’ average projection of $1.72 per share, according to Bloomberg data.
Sales of personal computers experienced a sharper decline than anticipated, dropping by 12% to $11.7 billion, reflecting the continued downturn in the PC market.
Commercial sales decreased by 11% to $9.56 billion, while consumer revenue plummeted by 19% to $2.15 billion.
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