Dell Technologies updated its annual revenue and profit projections on Thursday, driven by strong demand for its AI-optimized servers utilizing Nvidia's advanced chips, resulting in a nearly 3% increase in its shares during after-hours trading.
The infrastructure solutions division, which encompasses
Nvidia-powered servers, experienced a remarkable 38% growth, achieving a record
revenue of $11.65 billion in the second quarter. These servers are specifically
designed to meet the high computational requirements of AI systems, including
the training of large language models.
Chief Operating Officer Jeff Clarke highlighted the
significant potential in the enterprise sector, noting that many organizations
are still in the initial phases of AI integration. He also pointed out the
emerging prospects in "sovereign AI," capitalizing on Dell's robust
connections with governments worldwide.
On Wednesday, Nvidia indicated that countries developing AI
models in their native languages are increasingly relying on its chips, which
is expected to contribute low double-digit billions to its revenue for the
fiscal year ending January 2025.
Earlier this year, Nvidia CEO Jensen Huang emphasized the
collaboration with Dell, stating they are assisting businesses in establishing
their own "AI factories." Dell's stock has appreciated by 45% this
year.
On Thursday, Dell announced an updated annual revenue
forecast, now projecting between $95.5 billion and $98.5 billion, an increase
from the previous estimate of $93.5 billion to $97.5 billion. The company also
raised its annual adjusted profit per share prediction to $7.80, with a
variance of 25 cents.
In the second quarter, demand for AI-optimized servers
surged approximately 23% sequentially, reaching $3.2 billion, with a backlog of
$3.8 billion for these servers. "Our pipeline has expanded to several
multiples of our backlog," stated Clarke in a press release.
For the second quarter ending August 2, revenue increased by
about 9% to $25.03 billion, surpassing analysts' average forecast of $24.14
billion, as reported by LSEG data. The adjusted profit per share was $1.89,
exceeding the anticipated $1.71.
Despite the strong demand for AI servers, Dell's PC segment
faced challenges, losing market share to competitors. However, a significant
refresh cycle for AI PCs is anticipated next year following Microsoft's
discontinuation of support for Windows 10. Revenue from the client solutions
group, which includes PCs, declined by approximately 4% to $12.41 billion.
"Dell experienced a decline in PC shipment shares in
critical markets during the second quarter. While it remains the leading vendor
in the U.S. business sector, its competitors have gained market share compared
to last year," noted Mikako Kitagawa, director analyst at Gartner.
Additionally, the company recorded a $328 million charge
related to workforce reductions in the second quarter. In a separate
development, Reuters reported earlier on Thursday that Dell is once again
considering the potential sale of its cybersecurity subsidiary, SecureWorks,
after previous attempts to find a buyer were unsuccessful.