Dell Technologies Inc., a renowned name in the tech industry, has been making waves with its AI server business. On May 31, 2024, the company reported its fiscal first-quarter results, which surpassed analysts’ expectations.
Despite the positive earnings report, Dell’s shares fell by more than 16%. The reason? Concerns about the company’s margins and its AI server backlog. The company’s AI servers, while contributing to a significant increase in revenue, are being sold at “near-zero margins”, causing unease among investors.
The Numbers Game
Dell reported a revenue of $22.24 billion for the period, up from the estimated $21.64 billion. For the second quarter, the company expects earnings of $1.65 per share and sales between $23.5 billion and $24.5 billion. However, these promising figures were not enough to appease Wall Street.
The AI Server Backlog
One of the main concerns was Dell’s AI server backlog of $3.8 billion, which was lower than estimates. This, coupled with the expected decline in the company’s growth margin for the fiscal year, contributed to the fall in Dell’s shares.
The Road Ahead
Despite the current concerns, many believe that we are still in the early stages of AI adoption. As the momentum around AI servers continues, Dell is expected to capture higher AI margins over time.
