Shares of Dell Technologies experienced a significant drop of more than 16% on Friday following the release of its fiscal first-quarter results. Despite beating analysts’ expectations and providing positive guidance, investors seemed discouraged by the company’s lower-than-expected artificial intelligence server backlog and anticipated decline in margins. Dell reported revenues of $22.24 billion for the period, surpassing the $21.64 billion estimated by analysts.
For the second quarter, Dell projected earnings of $1.65 per share, with sales expected to fall between $23.5 billion and $24.5 billion, exceeding analysts’ projections of $23.35 billion. The company also anticipated total sales for the full fiscal year to be in the range of $93.5 billion to $97.5 billion. Despite these positive figures, the market response was not as expected, and the stock experienced a dip in extended trading.
Analyst Views
Bernstein analysts highlighted their disappointment in Dell’s results, particularly noting the squeeze in operating margins for its Infrastructure Solutions Group and stagnant operating profits compared to the previous year. While the company saw approximately $1.7 billion in additional revenue from AI servers, concerns arose about the profitability of these products. According to analysts, Dell’s AI initiatives have yet to translate into significant profits, leading to a sense of letdown among investors.
Bank of America analysts maintained their buy rating on Dell’s stock, emphasizing the positive growth trajectory of the company. They acknowledged the concern over the AI server backlog and expected margin decline but expressed optimism about Dell’s potential to capitalize on AI margins in the future. Similarly, JPMorgan analysts, while acknowledging investor disappointment, believed that concerns were exaggerated. They reiterated their overweight rating on the stock and viewed Dell’s margin fluctuations as an opportunity for investors to enter the market at an advantageous position.
Despite Dell Technologies’ solid financial performance and optimistic outlook, the market response was less than favorable. The discrepancy between analysts’ expectations and actual results, particularly concerning AI servers and margins, led to a sharp decline in share prices. Moving forward, Dell will need to address these concerns and demonstrate the profitability of its AI initiatives to regain investor confidence and drive stock performance.
Leave a Reply