Shares of the Round Rock, Texas-based company dropped approximately 2% in after-hours trading, despite the announcement of a $10 billion increase in its share repurchase program.
Dell's AI servers, which utilize Nvidia's advanced chips, are specifically designed to meet the substantial computational requirements for training large language models, such as those used in chatbots like ChatGPT.
This has led to increased demand for Dell and its competitors, including Super Micro Computer. The company anticipates $15 billion in annual revenue from AI server sales, representing a 53% increase from the $9.8 billion reported for the year ending January 31.
However, the high costs associated with manufacturing these AI-focused servers are impacting profit margins. Dell expects its annual adjusted gross margin rate to decline by approximately 100 basis points.
As of February 27, the company reported that its AI server backlog had surged to around $9 billion, bolstered by a partnership with Elon Musk's xAI startup.
Dell forecasts an annual adjusted profit of $9.30 per share, surpassing analysts' expectations of $9.23, according to data from LSEG. The midpoint of the company's annual revenue forecast, set at $103 billion, aligns with market estimates.
TARIFFS MAY LEAD TO PRICE INCREASES
A comprehensive U.S. trade tariff on Chinese goods is also on the horizon, posing a risk of potential price hikes for technology products, automotive manufacturing, and services.
Dell indicated that it is currently evaluating the implications of the tariff executive orders on its operations and customer base, noting that these announcements have not yet influenced the company's pricing strategy.
"Whatever tariff we cannot mitigate, we view that as an input cost. As our input costs go up, it may require us to adjust prices," stated Chief Operating Officer Jeff Clarke.
Research firm International Data Corporation announced on Thursday a reduction in its traditional PC forecast for 2025 and beyond, attributing this adjustment to U.S. tariffs on China and a decline in market sentiment.
For the fourth quarter ending January 31, the company reported revenue of $23.93 billion, falling short of the anticipated $24.56 billion. However, it achieved adjusted earnings per share of $2.68, surpassing the expected $2.53.
Dell's revenue from its infrastructure solutions group, which encompasses storage, software, and server products, increased by 22% to reach $11.35 billion. Meanwhile, revenue from its client solutions group, which includes PCs, saw a modest rise of 1%, totaling $11.88 billion.