Shares of Dell fall 18% as AI servers are sold at ‘near-zero margins’ – SUCH TV
Shares of Dell Technologies closed down nearly 18% Friday after investors were discouraged by the company’s lower-than-expected artificial intelligence server backlog and an estimated decline in margins.
Dell reported fiscal first-quarter results on Thursday that beat analysts’ expectations and offered rosy guidance. The company said revenue for the period was $22.24 billion, which was up from the $21.64 billion estimated by analysts.
For its second quarter, Dell said it expects earnings of $1.65 per share, and it expects sales to come in between $23.5 billion and $24.5 billion. Analysts polled by FactSet were expecting $23.35 billion. Dell guided for between $93.5 billion and $97.5 billion in sales for the full fiscal year.
The beat wasn’t enough to appease investors, and shares tumbled in extended trading Thursday.
Analysts said the “principle disappointment” in Dell’s results was that operating margins for its Infrastructure Solutions Group compressed year over year. Additionally, operating profits were flat compared with the same period last year, even though the company brought in around $1.7 billion in incremental AI server revenues.
The analysts said this resurfaced concerns that Dell’s AI servers are being sold at “near-zero margins.” In other words, the company’s AI initiatives are not translating into profits yet.
