Dell reported worse than expected revenue, but raised its forecast. How did the market react?

American Dell Technologies, one of the world's largest manufacturers of servers and computer equipment, recorded adjusted profit above market expectations for the third quarter, but the company's revenue was worse than forecasts. At the same time, Dell expects a strong end to the year thanks to sales growth in the artificial intelligence segment. The market believed the company.

Dell's adjusted earnings came in at $2.59 per share (EPS) versus LSEG's consensus forecast of $2.47, while quarterly revenue came in at a record $27.01 billion, falling short of the projected $27.13 billion, CNBC reports.

At the same time, the company raised its full-year outlook for AI server sales from $20 billion to $25 billion. Dell's fourth-quarter expectations were above market expectations: the company expects revenue of $31.5 billion plus or minus $0.5 billion (up 32% from the same period in 2024) with an adjusted EPS of about $3.5. Consensus forecasts were $27.59 billion and $3.21, respectively, CNBC noted.

Dell's strong outlook came amid investor concerns about margin pressure from high manufacturing costs and competition in the AI server market from rivals such as Supermicro, Reuters writes. In addition to the U.S. Department of Energy and Arab holding company G42, which is actively investing in artificial intelligence, Dell's customers include Elon Musk's AI startup xAI and CoreWeave, the agency noted. Dell supplies AI-optimized servers equipped with Nvidia chips.

The company's shares ended the main trading session in New York minus by 1%. But after the publication of the quarterly report with forecasts, quotations jumped by 3.5% in the postmarket.

Bigtechs' drive to ramp up AI infrastructure has triggered a sharp rise in the price of DRAM and NAND - two common types of memory chips - amid high competition in the server market. Dell executives promised to do "everything possible to mitigate" the price pressure. But in a market where demand exceeds supply, Dell has the ability to raise prices, and the company may take advantage of the situation, Reuters writes, citing Melissa Otto, head of analysts at S&P Global Visible Alpha.

Susquehanna analyst Mehdi Hosseini said in a Bloomberg statement after Dell's quarterly report that he maintains a cautious view on the company's stock. He said raising the outlook for AI server sales by a quarter was expected. "The problem with Dell is that (...) for every dollar of cost increase [in memory chips and other components] Dell can pass on $0.6 to the customer, but they have to charge 40%. On top of that, a gross margin of 5% doesn't inspire me. So until we know how they can stabilize margins and gain operating leverage, I remain neutral," Hosseini said.

According to FactSet, Wall Street remains confidently optimistic about Dell Technologies: the majority of experts - 21 out of 29 - recommend buying the company's shares (Buy and Overweight ratings), seven advise holding the stock (Hold) and only Morgan Stanley thinks it is time to "sell" (Sell). The consensus remains at Overweight ("above market"). Dell's average target price of $162.5 per share implies a 29% upside potential over a 12-month horizon.

This article was AI-translated and verified by a human editor