Dell (DELL) Flattish AI Server Growth Might Affect Q3 Results

Market analysts expect Dell to disclose third-quarter earnings of $2.07 per share (+9% YoY) on revenue of $24.7 billion (+11.1% YoY).

Dell's established presence in the AI server market positions the company to capitalize on the explosive growth projected for this segment.

With the AI server market expected to grow at a 45% CAGR from 2024 to 2026, Dell's early mover advantage and comprehensive solution offerings could translate into substantial revenue growth. The company's ability to provide end-to-end solutions, including integration and support services, differentiates it from competitors and could lead to deeper, more profitable relationships with enterprise customers.

As AI adoption accelerates across industries, Dell's expertise in this area could also drive sales in complementary product lines, creating a flywheel effect that boosts overall growth. If Dell can maintain its market share in this rapidly expanding segment, it could see its revenue and earnings growth significantly outpace current projections.

But analyst feels near-term results will likely be limited by flattish quarter-to-quarter AI server growth and sub-seasonal PC market trends. and DELL's fiscal third-quarter results is not expected to be a major catalyst for the large-cap stock.

In the second quarter, Dell’s commercial PC business was flat and its consumer PC business (which is a relatively small part of that PC business) fell by 22.2 percent, causing the overall PC business to drop by 4.1 percent to $12.41 billion. Operating income was really whacked in Q2 for the Client Solutions Group, falling 20.8 percent to $767 million.

Dell’s overall product revenues, including PCs and datacenter gear, rose by 11.9 percent to $18.95 billion, and services revenues eked out a mere 1.2 percent of growth year on year to $6.07 billion. Product sales were up a healthy 17.5 percent sequentially from fiscal Q1, while services fell by seven-tenths of a point sequentially.

The PC client business at Dell is an important contributor as it is what Dell as an IT supplier does and the revenue is important to pay some of the expenses from other BU, but if there is any decline in this business, I believe there is a need to do cost cutting.

Dell’s top-line revenue rose by 9.1 percent to $25.02 billion, operating income rose by 15.2 percent to $1.34 billion. One thing to look out is the cost cutting effect and also not taking deals that does not pay well, this has helped DELL to have net income rose by 84.8 percent to $841 million.

But that net income represented only 3.4 percent of revenues, compared to the average of 4.7 percent of revenues in the prior three quarters.

So we might see some weakness in post-earnings because there is high expectations that PC growth will accelerate in 2025.

Market expects Dell to report third-quarter revenue of $24.68 billion, an 11% rise year-over-year, and net income of $1.02 billion or $1.42 per share, up from $1 billion or $1.36 per share a year ago.

I would think that there might not be much upside coming from Dell’s third-quarter earnings, but we could see more growth in 2025 from artificial intelligence (AI) servers.

One thing that we need to understand is the “sub-seasonal PC market trends” and “flattish” quarter-over-quarter AI server growth, these could one way or another affect the earnings results.

Dell shares have gained nearly 90% since the start of the year, at $144.16 as of Monday's close.

DELL have been trading above short-term and long-term MA, with MACD giving a potential bullish crossover, but we might experience a slight pullback if DELL AI server growth and PC sales comes in lower-than-expected.

So if we were to follow MTF, it gives a strong upward trend, so if the pullback is not a lot and cause DELL to near or below the short-term MA, then we might have an opportunity to buy DELL because the outlook guidance for 2025 should look good and positive for Dell’s AI server sales.

I will be watching DELL price action closely today (26 Nov) before earnings, and watch if there is any consolidation that might appear.

Dell earnings might be flattish so I would not expect much from this third quarter results, as Dell AI server sales still does not provide much positive results, and PC sales might grow but at slower pace due to the seasonal period, and PC refresh for most organization does not happen at the end of the year especially when most employees would be on leave.

This would mean Dell might not sell so much PC during the third quarter for this PC refresh exercise, next quarter might be better.

Appreciate if you could share your thoughts in the comment section whether you think Dell AI server business would turn in a flat performance.

Disclaimer: The analysis and result presented does not recommend or suggest any investing in the said stock. This is purely for Analysis.