- Dell slumps 13% pre-market on soft guidance
- Enterprise and consumer PCs/laptops refresh hits bump
- AI kit orders soar but components shortage a worry
Texas-headquartered Dell Technologies (DELL:NYSE) is doing the right things, judging by latest earnings. Shares in the company lost 13% pre-market after issuing soft guidance for the fourth quarter despite Q3 earnings beating expectations.
Dell is a major player in computing infrastructure and is rapidly churning out advanced servers for AI users, including Elon Musk’s xAI. AI server orders hit a record $3.6 billion in the third quarter and its pipeline grew by more than 50%.
‘AI is a robust opportunity for us with no signs of slowing down’, Dell Technologies chief operating officer Jeff Clarke said in a press release.
DUMB COMPUTERS REFRESH
The problem is in its non-AI kit, particularly laptops and PCs. It’s Client Solutions arm saw revenue fall to $12.1 billion year-on-year in Q3, a modest 1% decline, not great when it is still the lion’s share of the business. Consumer revenue fell 18% to $2 billion, presumably, because if you want to upgrade your home tech, you’re going to wait for AI-powered kit to be available at the right price.
This plays to the belief among analysts that sales in the short-term are not lost, but deferred, and ‘that should theoretically enhance the set up for Dell entering full year 2026’, according to analysts at Deutsche.
Morgan Stanley went further, describing the investor reaction as ‘overdone’, adding they ‘would be buyers post-earnings’. Bernstein said it remains confident in Dell stock long-term, while Goldman Sachs upped its price target to $165 from $155.
WHAT TO WATCH
The key thing to watch near-term will be AI server growth amid component shortages, recently flagged by Super Micro Computer (SMCI:NASDAQ), as GPU cores designer Nvidia (NVDA:NASDAQ) rolls out its Blackwell chips.
Dell reported Q3 adjusted earnings per share of $2.15 on revenue of $24.4 billion, compared with estimates for $2.06 per share and $24.69 billion, respectively, according to Investing.com consensus data. Q4 guidance was for revenue of between $24 billion and $25 billion, missing the average analyst projection of $25.57 billion, according to LSEG data.
