Dell Sees Surge in Server Sales Driven by AI Demand

Michael Dell, the chairman and CEO of Dell Inc., spoke at the Dell Technologies World conference in Las Vegas on May 20, 2024, where he discussed the company's impressive growth.

Recently, Dell Technologies released its quarterly earnings report, indicating that the company exceeded analyst expectations in earnings per share (EPS) but fell short in overall revenue. Following the announcement, Dell's shares dropped by 5% in after-hours trading.

For the fiscal third quarter that ended on November 1, here’s how Dell performed compared to market estimates:

• Earnings per share: $2.15 adjusted vs. $2.06 expected
• Revenue: $24.4 billion vs. $24.67 billion expected

Net income for the quarter rose 12% to $1.12 billion, or $1.58 per share, compared to around $1 billion, or $1.36 per share, from the same period last year. Overall revenue grew approximately 10% from $22.25 billion a year ago.

On the earnings call, Dell will provide an outlook for the upcoming quarter.

This year, shares of Dell have increased by 86%, as investors recognize the company as a leading supplier of essential tools and systems for artificial intelligence (AI) development.

Dell stands out as one of the top vendors in the market for computer clusters required for AI development and deployment, particularly through its systems powered by Nvidia chips. The company competes with other server manufacturers like Supermicro and HPE, along with various manufacturers in Asia.

There is a persistent high demand for Nvidia's AI accelerators coming from cloud service providers, businesses, and government organizations, which usually purchase units equipped with thousands of AI chips. Dell provides these complete systems to its customers.

This year, Nvidia CEO Jensen Huang emphasized that for those looking to order new Blackwell AI chips, Dell is the company to contact.

"AI presents a solid opportunity for us with no signs of slowing down," stated Dell’s Chief Operating Officer Jeff Clarke.

Sales of AI servers at Dell fall under its Infrastructure Solutions Group (ISG), which encompasses AI servers, storage, networking components, and traditional servers. This group’s revenue saw a significant increase of 34%, primarily fueled by AI sales, reaching $11.4 billion.

The most robust segment within Dell’s ISG was its Servers and Networking division, which includes AI systems. Revenue in this area surged 58%, amounting to $7.4 billion. During the quarter, Dell shipped AI servers valued at $2.9 billion and reported that customers had booked $3.6 billion in future AI server orders.

The company noted that the rise in AI server orders also led to a significant increase in demand for its traditional servers, which are less power-intensive and based around CPU chips from Intel or AMD. This allows companies investing heavily in AI infrastructure to maximize their data center efficiency.

Dell's storage systems did not perform as strongly, with a modest 4% increase to $4 billion. However, the overall ISG unit has become more profitable due to the sales of higher-priced AI systems.

On the other hand, the Client Solutions Group, which sells PCs and laptops to both individuals and businesses, recorded a 1% decline year-over-year, totaling $12.1 billion. While sales to commercial clients increased by 3% annually to $10.1 billion, consumer PC sales plummeted 18% to $2 billion.

Dell, AI, Business