Dell recorded a substantial increase in sales of artificial intelligence (AI) servers during its fiscal second quarter. The IT equipment company not only boosted its sales but also managed to improve its profit margins in this category.
In the report released last Thursday (29-08-2024), Dell revealed that its server revenue grew by 80% compared to the previous year, reaching nearly $7.7 billion. This growth exceeded market expectations, which had predicted a 49% increase. AI server sales specifically saw a significant jump, almost doubling from the previous quarter, reaching $3.1 billion.
In addition to the revenue growth, the operating margin for the segment that includes servers rose by 3%, recovering from the seven-year low reported by Dell in the first quarter. This improvement helped Dell’s shares climb 4.3% on Friday, although the stock remains far from recovering previous losses.
Meanwhile, the stock market for AI companies has faced challenges, reflecting concerns about valuation, Nvidia's product cycle, and a market rotation toward less speculative segments. Even Nvidia has shown modest performance compared to the Dow Jones over the past three months. Super Micro, Dell’s main competitor in AI servers, saw its shares drop 47%, impacted by disappointing profits and accounting practices questioned by a short-selling firm.
Despite the strong performance, Dell acknowledges that AI server sales may experience fluctuations, as many customers are not yet ready to deploy state-of-the-art AI systems, which require sophisticated infrastructures, such as data centers equipped for direct liquid cooling.
Jeff Clarke, Dell’s Chief Operating Officer, highlighted that factors such as data center readiness and cooling capabilities are critical for AI server adoption.
Wall Street analysts remain optimistic about Dell’s prospects, with 81% recommending a buy on the company’s stock. In comparison, 47% of analysts recommend buying Super Micro’s shares and 38% for Hewlett Packard Enterprise. UBS wrote that over a multi-quarter period, fluctuations in shipment timing should not impact Dell’s valuation.
It appears that Dell is getting back on track in its AI growth trajectory!
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