Dell's Server Sales Surge Amidst AI Boom

Michael Dell, the chairman and chief executive officer of Dell Inc., recently spoke at the Dell Technologies World conference in Las Vegas, emphasizing the company's strong performance amid the growing demands of artificial intelligence (AI).

Dell Technologies announced its quarterly earnings, which exceeded analyst expectations for earnings per share but fell short on overall revenue. Following the release of these figures, shares of Dell dropped 5% in after-hours trading.

For the fiscal third quarter ending November 1, Dell reported:

• Earnings per share: $2.15 adjusted compared to the anticipated $2.06
• Revenue: $24.4 billion, while expectations were for $24.67 billion

Net income for the company grew by 12%, amounting to $1.12 billion, or $1.58 per share, compared to approximately $1 billion, or $1.36 per share, in the same period last year. Total revenue increased by about 10% from $22.25 billion a year ago.

Dell's shares have experienced an 86% increase in value throughout 2024 as investors recognize its significant role in providing tools and systems essential for artificial intelligence development.

The company is a leading vendor for computer clusters crucial for the development and deployment of AI technology, particularly systems powered by Nvidia chips. Dell faces competition from other server manufacturers such as Supermicro and HPE, as well as various companies based in Asia.

The demand for Nvidia's AI accelerators continues to soar among cloud providers, enterprises, and government organizations, which often purchase systems loaded with thousands of AI chips. Dell specializes in selling these complete packaged systems.

This year, Nvidia's CEO Jensen Huang publicly credited Dell and its founder Michael Dell as the go-to source for ordering its new Blackwell AI chips.

"AI presents a robust opportunity for us and shows no signs of slowing down," stated Dell's chief operating officer Jeff Clarke.

The sales of AI servers fall under Dell's Infrastructure Solutions Group (ISG), encompassing AI servers, storage, networking components, and traditional servers. This division saw a revenue increase of 34%, primarily driven by AI sales, totaling $11.4 billion.

Within the ISG, the Servers and Networking unit, which includes AI systems, experienced remarkable growth, with a revenue spike of 58% to reach $7.4 billion. In the last quarter, Dell shipped $2.9 billion worth of AI servers and secured future orders amounting to $3.6 billion.

The robust demand for AI servers has positively influenced the traditional server market, resulting in a double-digit growth in orders. These traditional servers, which are less power-hungry and utilize Intel or AMD chips, help optimize space and energy in data centers, particularly for companies heavily invested in AI technologies.

On the other hand, Dell's computer storage systems did not grow as strongly as the servers, posting a 4% increase to $4 billion. However, the ISG unit remains more profitable due to the higher margin on AI systems.

Dell's Client Solutions Group, responsible for selling PCs and laptops to consumers and enterprises, saw a slight decline of 1% on an annual basis, totaling $12.1 billion. While there was a 3% growth in sales to commercial clients, the revenue from consumer PC sales dropped 18% to $2 billion.

Dell, AI, Earnings