Dell Aims for $15B AI Server Revenue, but Market Remains Skeptical

Dell Technologies Inc. saw its stock decline in after-hours trading following the release of fourth-quarter financial results that fell short of market expectations and included a cautious outlook for the upcoming quarter.

The infrastructure and computing company delivered adjusted earnings of $2.68 per share, surpassing Wall Street's projection of $2.53 per share. However, quarterly revenue of $23.9 billion—a 7% increase year-over-year—missed the consensus forecast of $24.55 billion. Net income rose to $1.53 billion from $1.21 billion in the prior-year period.

Dell's shares dropped 2% in extended trading and have declined 5% since the start of the year, though the stock has surged more than 50% over the past two years. The gains reflect robust appetite for artificial intelligence servers equipped with Nvidia Corp.'s graphics processors, particularly the latest Blackwell architecture. Dell ranks among the leading suppliers of Nvidia-powered server systems, serving major clients including Elon Musk's xAI Corp.

Chief Operating Officer Jeff Clarke disclosed that Dell shipped approximately $10 billion in AI-optimized servers during fiscal 2025 and anticipates reaching $15 billion in the current year. The company has already booked more than $4.1 billion in unfulfilled AI server orders.

Our prospects for AI are strong, as we extend AI from the largest cloud service providers, into the enterprise at-scale, and out to the edge with the PC.

Jeff Clarke, Dell Chief Operating Officer

For the current quarter, Dell projects revenue between $22.5 billion and $23.5 billion, slightly trailing the analyst consensus of $23.59 billion. Earnings guidance of $1.65 per share also falls short of the Street's $1.76 estimate.

Full-year guidance calls for revenue between $101 billion and $105 billion, roughly aligned with the Street's $103.17 billion target. Annual earnings are forecast at $9.30 per share, exceeding the consensus estimate of $9.23.

The Infrastructure Solutions Group, which encompasses servers, storage systems, and networking gear, generated $11.35 billion in revenue during the latest quarter, up 22% from the year-ago period but below the Street's $11.7 billion target.

Dave Vellante, chief analyst at theCUBE Research, noted that "The ISG business is going strong, although the transition to Blackwell was a constraint and caused some lumpiness in the quarter. Nonetheless, I'm encouraged that ISG revenue grew 22% year-over-year, and operating profits in the division grew 44%, which shows Dell has operating leverage as it grows AI servers." He added that "there's a large deal in the pipeline with xAI, which is growing the backlog and will translate into revenue in future quarters."

The Client Solutions segment, covering personal computer operations, posted $11.88 billion in sales, up 5% annually but falling short of the $11.98 billion analyst expectation.

Vellante observed that "The client/PC business remains soft as we wait for AI PCs and refresh cycles to kick in. I would expect that it is a second-half of calendar year 2025 story for AI PCs."

Dell announced an 18% increase in its annual dividend to $2.10 per share.

Vellante characterized Dell's guidance as pointing toward 8% to 10% revenue growth. "A company of Dell's size with nearly $100 billion in revenue has a lot of opportunities to apply AI internally to cut costs and its capital allocation continues to give back cash to shareholders," he said. "Going forward, I don't expect the enterprise AI business to peter out any time soon. If and when AI PCs kick in, that will be a big boost to cash generation and will bode well for Dell."

Holger Mueller, analyst at Constellation Research Inc., suggested that investors may be troubled by the sluggish client computing division, where commercial PC sales barely match inflation and consumer PC demand lags. Nevertheless, he highlighted Dell's impressive profit expansion, with full-year earnings per share climbing nearly 40%.

"If Dell's infrastructure business keeps growing as it did in the last full year, it will soon surpass the client computing business, and that would represent a new milestone for the company," Mueller said. "AI demand is the main driver of this growth, but the main question is, how big will the on-premises AI bonanza be in 2025?"

Competitors also disappoint the market

Dell was not alone in disappointing shareholders. Rivals HP Inc. and NetApp Inc. similarly missed key metrics, with both stocks declining in late trading.

HP delivered mixed outcomes, with earnings of 74 cents per share narrowly missing the Street's 75-cent target, while revenue edged up 2% to $13.5 billion, exceeding the $13.39 billion forecast.

For its fiscal second quarter, HP guided toward earnings of 75 to 85 cents per share, below the Street's 86-cent estimate. The outlook incorporates a 13-cent charge related to restructuring and other expenses. HP's stock fell more than 3% following the announcement.

Chief Executive Enrique Lores highlighted robust demand for HP's new "AI PCs," which are catalyzing a fresh upgrade wave. "I would say we see very steady and fast progression from traditional PCs to AI PCs," he told analysts. "The market grew 25% quarter-over-over, and we expect this growth to intensify through the rest of the year."

HP announced plans to eliminate more than 2,000 positions, extending a restructuring initiative that has already eliminated more than 7,000 jobs. Lores indicated the company expects to realize approximately $1.9 billion in savings, though it will incur restructuring charges of about $1.2 billion.

NetApp's stock experienced a sharp decline of more than 14% in late trading after the company reduced its fiscal 2025 profit and revenue guidance, citing weak demand for data storage services.

NetApp now projects fiscal 2025 adjusted earnings between $7.17 and $7.27 per share, down from its prior range of $7.20 to $7.40. Revenue guidance was trimmed to $6.49 billion to $6.64 billion, compared with the earlier estimate of $6.54 billion to $6.74 billion.

NetApp's prior-quarter results were also underwhelming. The company reported earnings of $1.91 per share, matching Street expectations, but revenue came to $1.64 billion, trailing the $1.69 billion target.