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Tech News & Podcast | Africa

Dell shares drop 18% as AI servers are marketed at “near-zero margins

Dell Technologies’ stock fell around 18% on Friday as a result of investors losing hope over the company’s lower-than-expected backlog of AI servers and projected fall in profits.

Dell surpassed analysts’ expectations when it released its fiscal first-quarter results on Thursday and gave optimistic guidance. Revenue for the period, according to the corporation, was $22.24 billion, up from the $21.64 billion experts had predicted, according to LSEG.

Dell Q1 Earnings Exceed Expectations, Yet Shares Dip Amid AI Server Margin Concerns

Dell stated that it anticipates $1.65 in profits per share and $23.5 to $24.5 billion in revenues for the second quarter. According to a FactSet survey, analysts were predicting $23.35 billion. For the entire fiscal year, Dell projected sales of between $93.5 billion and $97.5 billion.

Investors were not placated by the beat, as shares fell during Thursday’s extended trading session.

The “principle disappointment” in Dell’s results, according to Bernstein analysts, was the company’s Infrastructure Solutions Group’s operating margins contracting yearly. Furthermore, despite the corporation generating an additional $1.7 billion in revenue from AI servers, operating earnings were unchanged from the same period in the previous year.

This, according to the analysts, reignited worries that Dell is selling its AI servers at “near-zero margins.” Stated differently, the corporation has not yet seen financial gains from its AI endeavors.

In a report published on Friday, the analysts stated, “On the whole, Dell’s Q1 25 results were disappointing, relative to very high expectations.”

Analysts at Bank of America noted that Dell had a solid quarter and maintained their buy recommendation for the company. Nevertheless, they claimed that a portion of the after-hours move was caused by the fact that Dell’s $3.8 billion AI server backlog was less than anticipated and that the company’s growth margin will likely decrease during the upcoming fiscal year.

In a note released on Thursday, the analysts stated, “We reiterate Buy given that we are 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.”

Analysts from JPMorgan stated that while they were not shocked by investors’ responses to the data, they did think the worries were “overblown.” They stated Dell’s margin choppyness is going to present a compelling buying opportunity and kept their overweight recommendation on the stock.

Analysts predict Dell will witness rising trends in AI demand and a recovery in its traditional infrastructure. The business is expected to grow both revenue and profitability ahead of its medium-term aim.

“We would expect an overhang with investors more likely to monitor execution to the promised margin improvement through the remainder of the year,” they wrote in a note on Thursday. “We expect investors to be disappointed given lofty expectations of a ramp with greater flow-through to the bottom-line,” they wrote.

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