Dell beats estimates as server sales soar 80%, riding AI wave

Dell reported quarterly results on Thursday that beat Wall Street expectations, powered by an 80% increase in server sales. The stock rose more than 3% in extended trading.

Here's how the company did for the fiscal second quarter vs. LSEG consensus estimates:

• Revenue: $25.06 billion vs. $24.53 billion expected
• EPS: $1.89 adjusted, vs. $1.71 expected

Net income climbed 85% to $841 million, or $1.17 per share, from $455 million, or 63 cents per share, in the year-ago period. Revenue increased about 9% from $22.93 billion a year ago.

The stock took a leg lower after Dell revised its full-year guidance to between $95.5 billion and $98.5 billion, a slight upward revision from the company's previous forecast. Earlier this year, the company told investors to expect revenue between $93.5 billion and $97.5 billion for the full year, up from $88.4 billion in the prior year.

For the current quarter, Dell said it expected between $24 billion and $25 billion in revenue, in line with the StreetAccount estimate of $24.6 billion.

Dell has emerged as a top vendor for servers that can handle artificial intelligence workloads, especially those based around Nvidia chips, as demand skyrockets from cloud providers. Earlier this year, Nvidia CEO Jensen Huang called out Dell founder Michael Dell as the person to contact to place orders for systems that include the company's new chips.

Dell shares are up 48% so far this year, but have slumped 34% since the company's last report.

AI sales are in the company's Infrastructure Solutions Group, which makes servers and systems for data centers. It's the company's fastest-growing unit. Overall ISG sales rose 38% to $11.65 billion, ahead of StreetAccount expectations of $10.44 billion.

The standout in Dell's report was Servers and Networking revenue, which includes both AI-oriented servers based around GPUs from Nvidia and AMD, as well as more traditional servers for older applications. It's part of ISG.

"We are competing in all of the big AI deals and are winning significant deployments at scale," Jeff operating chief Jeff Clark said on a earnings call with analysts.

The unit reported $7.76 billion in sales, rising 80% on an annual basis, and beating StreetAccount expectations of $6.37 billion. Dell said $3.1 billion of that was AI server sales, up from $1.7 billion in the May quarter.

Clarke attributed the increase in revenue to server demand that continues to rise, and said that there was an increasing "backlog" of $3.8 billion in AI server orders that haven't been fulfilled yet. There's also a multibillion-dollar "pipeline" of AI server deals from enterprises and cloud providers that haven't been finalized.

However, Dell's storage business, also part of ISG, fell 5% to $4 billion in sales.

Dell's Client Solutions Group, which focuses on PCs and laptops, declined 4% on an annual basis to $12.41 billion in revenue. Consumer sales fell 22% to $1.86 billion, and the company's enterprise PC business was flat at $10.55 billion in sales.

Dell said that it spent $1 billion in the quarter on share repurchases and dividends.