Dell raises full-year profit forecast on strong AI server demand, shares rise

Dell Technologies raised its full-year adjusted profit forecast to $9.40 per share, driven by strong demand for AI-powered servers utilizing Nvidia chips, leading to a 10% surge in after-hours trading. The company reported $12.1 billion in AI orders in Q1, exceeding total FY25 shipments, and anticipates Q2 revenue between $28.5 billion and $29.5 billion, surpassing analyst estimates; however, Q1 adjusted earnings per share of $1.55 missed estimates of $1.69.

Analysis

Dell Technologies has revised its full-year adjusted profit forecast upwards to $9.40 per share from a prior $9.30, while reiterating its annual revenue outlook, signaling improved profitability driven by robust demand for its AI-powered servers, which incorporate Nvidia's advanced chips. This positive outlook, which sent Dell's shares up 10% in extended trading, is underpinned by significant AI server order momentum, with the company securing $12.1 billion in AI orders in the first quarter alone—surpassing total anticipated shipments for all of FY25—and accumulating a $14.4 billion backlog. Further bolstering this narrative, the U.S. Department of Energy announced the Doudna supercomputer project, which will utilize Dell and Nvidia technology. For the second quarter, Dell anticipates revenue between $28.5 billion and $29.5 billion, substantially exceeding the analyst consensus of $25.05 billion, and projects adjusted earnings per share of $2.25, above the $2.09 estimate. Despite this strong forward guidance and first-quarter revenue of $23.38 billion slightly beating estimates of $23.14 billion, first-quarter adjusted earnings per share of $1.55 missed estimates of $1.69. Revenue growth was evident across segments, with the Infrastructure Solutions Group (servers, storage, software) up 12% to $10.32 billion and the Client Solutions Group (PCs) up 5% to $12.51 billion. While the demand for AI servers is a clear tailwind for Dell and peers like Super Micro Computer, the high cost of producing these servers and intense competition continue to exert pressure on margins, a factor to watch despite the improved profit forecast.

Key Decisions for Investors

• Investors should recognize the significant AI-driven growth opportunity for Dell, reflected in its $12.1 billion Q1 AI orders and strong Q2 guidance, but remain cognizant of the Q1 adjusted EPS miss.
• Consider the upward revision in full-year profit forecast alongside a reiterated revenue outlook as indicative of potential margin improvement, though ongoing pressures from high AI server production costs and competition warrant monitoring.
• The substantial AI server backlog of $14.4 billion provides visibility, yet investors should assess Dell's ability to convert this backlog profitably and manage the competitive landscape effectively.