Dell Technologies (DELL) stock sank as much as 12% early Wednesday after the company took a cautious approach to its forecast for investors while warning that AI growth “will not be linear.”
“AI is a robust opportunity…and interest in our portfolio is an all-time high with no signs of slowing down,” Dell COO Jeffrey Clarke said during a call with investors Tuesday night. “That said, this business will not be linear, especially as customers navigate an underlying silicon road map that is changing.”
Dell’s AI server revenues fell 9% in the third quarter from the prior period.
On top of a broader slump in the market for personal computers, that nonlinear growth in the AI space contributed to Dell’s lower full year outlook for its fiscal year 2025 ending in February.
The midpoint of the company’s guidance range for annual revenue fell to $96.1 billion from $97 billion since last quarter, Bernstein analyst Toni Sacconaghi noted on the earnings call. The company said it will provide a formal fiscal 2026 outlook for investors early next year.
Even with Wednesday’s decline, Dell stock is still up over 65% this year.
On the call, Clarke mostly cited a slower-than-expected recovery in the PC market when asked about Dell’s lower guidance, but he also pointed to customers’ shifting trends toward the newest AI chips. Clarke said Dell’s consumers are looking to use Nvidia’s (NVDA) latest Blackwell AI chips in Dell’s servers, and those chips have faced some delays. Last week, Nvidia said “production is in full steam” for these chips.
“We saw in Q3 a shift and a pretty rapid shift of the orders moving towards our Blackwell design,” said Clarke, noting that orders for its servers with the Blackwell design make up “a significant portion” of its backlog.
Traditionally a PC company, Dell’s expansion into IT products in the 2010s has paid off during the AI boom.
Its servers equipped with Nvidia AI chips are used by companies including Elon Musk’s xAI and the $23 billion cloud provider CoreWeave as part of the crucial hardware used to run generative artificial intelligence software.
TD Cowen analyst Krish Sankar noted that Dell’s fall in AI server revenue in the most recent quarter was due to “mostly due to the well-understood Blackwell pushouts.”
Sankar added that Dell’s rising backlog and orders of AI servers worth an estimated $8 billion for the third quarter “are a better representation of actual demand,” noting Dell’s AI pipeline “now stands slightly below $20B.”
