After reporting better-than-expected results for the fourth quarter, Dell Technologies (DELL.US) shares rose over 28% today, reigniting investor sentiment around artificial intelligence. The company attributed its success to strong demand for AI servers and expects a gradual improvement in business performance in the mass storage and PC segment. Dell forecasts an average annual revenue growth of 3% to 4%, with at least an 8% increase in adjusted earnings per share, outpacing market expectations for flat growth.
- Revenue: $22.32 billion vs. $22.17 billion forecast
- Earnings Per Share: $2.20 vs. $1.72 forecast
Business Improvement
- Dell estimates a profit of $1.15 per share on $21.5 billion in revenue for the first quarter, compared to the forecast of $1.4 per share and $21.4 billion in sales. Wall Street overlooked the weaker guidance, content with annual estimates of $7.5 per share and $93 billion in revenue, compared to expected $7.14 per share and $92.2 billion. Dell also increased its dividend by 20% to $1.78 per share.
- Evercore ISI highlighted that Dell's AI-optimized servers are projected to generate $5 billion in sales. The company reported a 40% quarter-over-quarter increase in this segment. In the fourth quarter, Dell's AI system deliveries amounted to $800 million, and the company expects further improvement in the current quarter. The $5 billion revenue estimate for 2024 seems conservative.
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Apart from the results, Wall Street also appreciated the company's commentary, emphasizing that Dell positioned itself early in the AI market and is beginning to reap significant financial benefits from it.
- Server and network revenues reached $4.9 billion, driven by AI-optimized servers. Dell noted that enterprises and large corporate clients are in the early stages of AI implementation, and the anticipated growth in unstructured data should benefit Dell, especially in the memory market.
- The company plans to focus on the PC segment for most AI infrastructure work. The Dell Infrastructure Solutions division achieved revenues of $9.3 billion in Q4 2024, a 10% increase year-over-year.
AI Influences Analyst Actions
As a result, analysts from Citi and Evercore raised their stock recommendations to $125 per share. Wall Street hopes that increasing revenues, lower operational costs, and the AI business will compensate Dell for slightly lower gross margins. Citi expects Dell's AI segment sales to reach $12-15 billion next year. However, UBS analysts were more cautious, raising their stock recommendation to $113 per share. They predict a maximum 3-4% growth in the PC market in 2024, with AI contributing positively but gradually to results. Dell announced a collaboration with car manufacturer Subaru, supplying AI products.
Dell Shares (D1)
Source: xStation 5
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