Shares of Dell Technologies closed down nearly 18% on Friday after investors were discouraged by the corporate's lower-than-expected artificial intelligence backlog and an estimated decline in margins.
Dell reported first-quarter results on Thursday that beat analysts' expectations and provided upbeat guidance. The company said revenue for the period was $22.24 billion, above the $21.64 billion analyst estimate, in accordance with LSEG.
Dell expects earnings of $1.65 per share for the second quarter and revenue of between $23.5 billion and $24.5 billion. Analysts in a FactSet survey had expected revenue of $23.35 billion. Dell forecast revenue of between $93.5 billion and $97.5 billion for the complete fiscal yr.
However, this positive development did not appease investors, and share prices plummeted during further trading on Thursday.
Bernstein analysts said the “biggest disappointment” in Dell's results was that the Infrastructure Solutions Group's operating margins declined yr over yr. In addition, operating profits were flat in comparison with the identical period last yr, regardless that the corporate earned about $1.7 billion in additional revenue from AI servers.
Analysts said this has revived fears that Dell's AI servers are being sold at “nearly zero profit margin.” In other words, the corporate's AI initiatives aren’t yet resulting in profits.
“The bottom line is that Dell's first quarter 2025 results were disappointing compared to very high expectations,” the analysts wrote in a note on Friday.
Analysts at Bank of America said Dell reported a powerful quarter they usually reiterated their buy rating on the stock. However, they said the after-hours move was partly because Dell's AI server backlog got here in below estimates at $3.8 billion and the corporate's growth margin is predicted to say no within the fiscal yr.
“We reiterate our buy rating as we are still in the early stages of AI adoption and the pipeline and momentum in AI servers remains strong. We believe DELL can achieve higher AI margins over time,” the analysts said in a note on Thursday.
Analysts at JPMorgan said they weren’t surprised by investors' response to the report, but added that they thought the concerns were “overdone.” They maintained their obese rating on the stock and said Dell's margin volatility would create a lovely buying opportunity.
According to analysts, the corporate is on the right track to extend each revenue and profit beyond its medium-term targets. They also expect Dell to see an acceleration in demand for AI and a recovery in its traditional infrastructure.
“We expect investors to be disappointed given their high expectations for a higher impact increase on the bottom line. We also expect an overhang as investors will be more focused on the implementation of the promised margin improvements for the rest of the year,” they wrote in a note on Thursday.
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