AI server demand drives staggering revenue growth for Dell and its stock soars

Dell Technologies Inc. delivered its fastest rate of revenue growth since returning to the public markets more than seven years ago as it delivered stellar first-quarter financial results that crushed analysts’ expectations.

The computer server and infrastructure marker also reported rising profitability, and its stock climbed by an impressive 38% in extended trading today.

The results came in as NetApp Inc., another key data center infrastructure player, also delivered strong quarterly numbers, sending its stock higher in late trading too.

However, it was Dell that earned the lion’s share of the plaudits today. The company delivered earnings before certain costs such as stock compensation of $4.86 per share on revenue of $43.84 billion, up by a staggering 88% from the same period one year ago. That’s a truly astonishing leap for such an established company, and it crushed Wall Street’s targets. Analysts were looking for earnings of just $2.94 per share on much lower sales of just $35.43 billion.

Dell delivered an even more impressive jump in its bottom line. It reported net income of $3.44 billion at the end of the quarter, up 256% from a year earlier, when it delivered a profit of just $965 million.

AI servers fly off the shelves

Since reentering the public markets in late 2018, five years after Dell had taken itself private, the server maker had never managed to exceed more than 39% growth in any quarter. But this time things are different, and it’s all thanks to the artificial intelligence boom.

Dell has emerged as one of the main beneficiaries of AI’s astonishing growth because it’s increasingly being seen as the company to go to in order to acquire graphics processing units from Nvidia Corp. The company assembles and sells a range of AI servers for use in large data centers, and they’re really selling.

During the quarter, Dell’s AI server revenue increased by an incredible 757% from a year earlier, to $16.1 billion. For the full year, the company now anticipates AI server revenue to top $60 billion, up from a projection of just $50 billion three months earlier. If it achieves that number, that would mean 144% growth year-on-year.

Dell ended the quarter with more than 5,000 AI server customers, including multiple neocloud providers, sovereign clients and large enterprises, it said. With today’s gains in late trading, Dell’s stock is now up more than 150% in the year to date, versus gains of just 10% for the broader S&P 500 index.

One of the biggest winners among Dell’s backers is U.S. President Donald Trump, who became a shareholder of the company during the first quarter, according to documents filed by the U.S. Office of Government Ethics. Trump said at a White House event earlier this month that it’s a good time to “go out and buy Dell,” and he was prepared to put his money where his mouth is.

Dell’s stunning results make it clear that it’s not only cloud providers who are going to be the big winners in AI, for those that cater primarily to on-premises infrastructure are seeing enormous growth too, said Holger Mueller of Constellation Research. “If you’d said a few years ago that Dell would deliver an 88% revenue increase, most would have assumed it was an April Fool’s joke, because Dell simply didn’t do that sort of thing,” the analyst added. “But now, Dell is clearly an AI server company first and foremost, and it’s increasingly focused on enterprises.”

“Dell’s AI Factory focus is paying off handsomely,” according to Dave Vellante of theCUBE Reaearch, sister company of SiliconANGLE. “The combination of AI clouds and on-prem data center demand is proving out the thesis that hypersclaers aren’t the only beneficiaries of a strong market.” Vellante added that it’s not just AI servers as “Dell’s results show meaningful operating leverage and underscore its supply chain advantage.”  All sectors of Dell’s business beat expectations  according to Vellante, including traditional servers, storage and PCs.

Rising costs

The company’s growing profitability likely reflects a decision by Dell to raise prices for its AI servers in January. At the time, the company said it was doing this to reflect higher expenses arising from the global memory shortage that’s tied to the AI boom.

On a conference call with analysts, Dell’s vice chairman and operating chief Jeff Clarke (pictured) said that the company is repricing its servers on an almost daily basis to reflect the surging costs of memory. “I’m sure customers feel that pain,” he told analysts. “Unfortunately, I don’t see that changing given the world that we’re living in today, where you have an inflationary environment, whether it’s fuel, whether it’s raw materials, whether that’s DRAM, whether that’s NAND, CPUs. We are living in an inflationary environment that is changing at a rate that obviously we’ve never seen before. And everything that we see suggests that continues.”

Though it may be tough for some customers, Dell does not seem to be experiencing much hardship as a result. For the second quarter, the company said it’s targeting adjusted earnings of $4.80 per share on sales of between $44 billion and $45 billion. That compares with Wall Street’s target of just $2.98 per share on sales of $34.97 billion.

The company also revised its full-year forecast, and it now sees earnings of around $17.90 at the midpoint of its guidance range, with sales at between $165 billion and $169 billion, which would imply growth of 47% at the midpoint. Analysts are calling for earnings of just $13.09 per share on full-year sales of just $142.5 billion.

The bulk of Dell’s sales came within its Infrastructure Solutions group, which accounts for servers and other data center hardware. Revenue there rose 181% from a year earlier to $29 billion, well ahead of the $22.4 billion consensus estimate. It also saw a significant jump in overall unit sales, according to Clarke.

“Think semiconductor companies, big tech, that are using it to actually drive some of the inference workloads and agentic workloads inside their environment,” he added, discussing whom the company’s main customers are.

Meanwhile, Dell’s Client Solutions group, which accounts for personal computers and accessories, delivered revenue of $14.6 billion in the quarter, up 17% from a year earlier. Clarke said he does see some problems for the company in the second half of the year as a result of its growing supply chain challenges. In addition to memory, the company is also struggling to procure enough standard central processing units, hard drives and other components.

Mueller also raised some concerns about costs, saying astute observers will realize that Dell is not really increasing its profitability on unit sales, it’s simply sell a lot more products than before. “But with rising component costs, that means Dell has a lot more risk to manage,” Mueller added. “This will be one of the key performance indicators to watch in the coming quarters, and it will need to show good cost discipline going forward.”

Storage is red-hot too

Though it couldn’t match the impressive numbers delivered by Dell, the data storage company NetApp showed that it’s not only AI server makers who are seeing strong demand right now. Storage is a vital component of every AI server that’s shipped, and that has helped to fuel a recent rally that has seen NetApp’s stock rise more than 30% in recent weeks.

The company reported solid fourth-quarter earnings of $2.43 per share on revenue of $1.95 billion, up 12% from a year earlier. The results were better than expected, with Wall Street looking for earnings of just $2.27 per share on $1.87 billion in revenue. The stock gained more than 13% in late trading.

“Our industry-leading hybrid cloud, intelligent data infrastructure platform, trusted by the world’s leading organizations, is powering customers’ AI driven transformations,” said NetApp Chief Executive George Kurian.

NetApp also proclaimed confident guidance, saying it’s looking for sales of around $1.83 billion in the current quarter, well ahead of the Street’s target of $1.67 billion. Earnings are expected to come to $2.10 per share, compared with expectations for $1.84.

The company’s full-year forecast is optimistic too. It’s looking for total sales of $7.45 billion by the end of the year, compared to Wall Street’s prior estimate of $7.2 billion.

Photo: SiliconANGLE