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Dell Technologies (NYSE:DELL) has raised its annual revenue and profit forecasts, driven by a surge in demand for its AI-optimized servers, which are powered by Nvidia's cutting-edge chips. The announcement, made on Thursday, sent Dell's shares up approximately 3% in extended trading, reflecting investor confidence in the company's growth trajectory.
AI Server Demand Fuels Record Performance
The standout performer for Dell in the second quarter was its Infrastructure Solutions Group, which includes the highly sought-after Nvidia-powered servers. The group reported a remarkable 38% increase in revenue, reaching a record $11.65 billion. These servers are specifically designed to meet the intense computational demands of AI systems, including the training of large language models, which are becoming increasingly critical for enterprises worldwide.
Jeff Clarke, Dell's Chief Operating Officer, emphasized the growing importance of AI in enterprise settings during the post-earnings call. He also highlighted Dell's emerging opportunity in "sovereign AI," leveraging the company's strong relationships with governments globally to support the development of AI models tailored to specific national needs.
Strategic Partnership with Nvidia Bolsters Growth
Nvidia, a key partner in Dell's AI endeavors, noted that nations developing AI models in their native languages are increasingly relying on its chips. This trend is expected to contribute "low double-digit billions" to Nvidia's revenue in the financial year ending January 2025. Earlier this year, Nvidia CEO Jensen Huang acknowledged the partnership with Dell, stating that together, they are helping businesses create their own "AI factories."
Dell's stock has benefited significantly from the growing focus on AI, rising 45% year-to-date. The company has now updated its annual revenue forecast to a range of $95.5 billion to $98.5 billion, up from the previous estimate of $93.5 billion to $97.5 billion. Additionally, Dell raised its annual adjusted profit per share forecast to $7.80, plus or minus 25 cents, reflecting the anticipated continued growth in demand for its AI solutions.
In the second quarter, demand for Dell's AI-optimized servers rose by approximately 23% sequentially, generating $3.2 billion in revenue. The backlog for these servers stands at $3.8 billion, with Clarke noting that the company's pipeline has expanded to "several multiples of our backlog."
Mixed Results in Other Segments
While AI server demand has soared, Dell's PC business has faced challenges. The company's Client Solutions Group, which includes its PC segment, saw a 4% decline in revenue to $12.41 billion. Dell has been losing market share to competitors in key markets, despite being the leading vendor in the U.S. business market. Mikako Kitagawa, Director Analyst at Gartner, pointed out that "Dell lost PC shipment shares in key markets in the second quarter," while competitors showed growth and gained more market share.
However, there is optimism for a strong refresh cycle in the PC market next year, particularly with the anticipated end of support for Windows 10 by Microsoft.
Dell also reported a $328 million charge related to workforce reductions in the second quarter, as part of its ongoing efforts to streamline operations.
Exploring Strategic Divestitures
In a separate development, Reuters reported that Dell is once again exploring the sale of its cybersecurity firm, SecureWorks. This move follows previous unsuccessful attempts to find a buyer, as the company continues to evaluate strategic options to optimize its portfolio.
