Dell Technologies stock tumbled Wednesday, after the tech hardware company reported mixed fiscal third quarter results. Earnings beat estimates but Dell's revenue and its sales outlook came up short, despite strong growth from AI-related server sales.
Dell said late Tuesday that it earned an adjusted $2.15 per share on sales of $24.4 billion for the October-ended quarter. Analysts polled by FactSet projected the Round Rock, Texas-based company would post adjusted earnings of $2.06 per share on sales of $24.7 billion.
Revenue grew 10% while adjusted earnings increased 14% year-over-year.
On a call with analysts, company officials guided for sales of $24.5 billion at the midpoint of its range for its current January-ending quarter. That was below consensus analyst forecasts of $25.6 billion in sales for Dell's fiscal fourth quarter, according to FactSet.
On the stock market today, Dell stock fell more than 12% to close at 124.36.
AI Server Boost
Heading into the report, Dell shares had gained 87% this year, helped by Dell's position as a provider of servers to power artificial intelligence workloads.
Dell Chief Operating Officer Jeff Clarke said in the earnings release Tuesday that AI is "a robust opportunity for us with no signs of slowing down."
Revenue from sales of servers and networking equipment increased 58% year-over-year to $7.4 billion in the quarter, Dell said.
Overall sales for Dell's Infrastructure Solutions Group increased 34% to $11.4 billion.
Dell's Client Solutions Group, which sells PCs, reported revenue of $12.1 billion, down 1% year over year. Demand and profitability for the consumer PC business "continue to be challenged," Clarke said on the analyst call.
"We are optimistic about the coming e PC refresh cycle as the install base continues to age, and with Windows 10 reaching end of life in 46 weeks," Clarke added. "The significant advancements in AI-enabled architectures and application development are welcome tailwinds."
Dell Stock Hit By High Expectations
"We get it - investors don't like lowered guidance for F4Q25 even after a 3Q beat," Melius Research analyst Ben Reitzes said in a client note. Reitzes cited the weakness in PCs and "a hit from the transition to Blackwell in AI servers," referring to the new Nvidia AI chip.
"However, it isn't as bad as it seems," Reitzes argued, noting that 1% of Dell's annual revenue "seems pushed from the 4Q into the next fiscal year - with the AI portion likely captured in the first half and the PC portion hopefully by the end of the year."
UBS analyst David Vogt reiterated a buy rating and price target of 158 for Dell stock. Vogt said in a client note that Dell's $2.9 billion in AI-related server sales for the quarter missed some "overly optimistic" targets from investors.
"While several industry cross currents over the past several months created a difficult set-up into earnings, as AI revenue expectations became somewhat elevated, the quarterly results do not change our long-term fundamental view that Dell's more muted end-markets should all recover in calendar year 2025," Vogt wrote.
He projects AI-server demand powering at least 7% revenue growth and "mid-teens" earnings-per-share growth.
More AI Market Competition
On the other hand, Barclays analyst Tim Long maintained a neutral equal weight stance for Dell following the results.
"Dell continues to perform well in AI servers, but orders are translating slower than we expected to revenues, and we have yet to see a meaningful increase in gross margins," Long wrote.
He added that Barclays expects the AI server market to become increasingly competitive.
Coming into the report, Dell stock had an IBD Composite Rating of 54 out of 99, according to IBD Stock Checkup. The score combines five separate proprietary ratings into one rating. The best growth stocks have a Composite Rating of 90 or better.
But Dell's IBD Relative Strength Rating was 90 out of 99. The RS Rating means that Dell has outperformed 90% of all stocks in IBD's database over the past year.
