After hours yesterday, $Dell Technologies Inc.(DELL)$ , AI bull stock, dropped a bombshell with their first-quarter earnings report for fiscal year 2025, corresponding to the three months ending May 3rd.
The stock price plummeted 17.8% in after-hours trading!
What happened? How did the AI bull stock that rose well before suddenly collapse?
Revenue
In the first quarter, Dell's revenue was $22.244 billion, an increase of 6.3%, reversing the previous six consecutive quarters of negative growth, slightly exceeding analyst expectations of $21.6 billion:
By segments,
Servers & Networking revenue hit $5.466 billion, an increase of 42.5% year-on-year, mainly driven by the blowout demand for AI servers;
Storage business revenue was $3.76 billion, an increase of 0.1%;
Client Solutions revenue was $11.97 billion, down 0.1% year-over-year;
On the trend front, Dell's revenue growth is picking up across all segments, with servers leading the charge.
The company boasted that AI server shipments doubled from the previous quarter, hitting to $1.7 billion, and the order backlog for such servers jumped 30% to $3.8 billion from $2.9 billion at the end of January.
Guidelines
Looking ahead, Dell expects second-quarter revenue to be between $23.5 billion and $24.5 billion, surpassing analysts' projections of $2.36 billion, the median growth rate of 4.6%, is expected to 2025 fiscal year cattle revenue between $93.5 billion and $97.5 billion, an increase of about 8%!
In general, Dell's growth prospects are still solid, and AI demand is indeed robust. But what's the catch? Dell's gross margin for the quarter was only 21.6%, missing analysts' estimates of 22.9%. That dragged down Dell's operating profit by 14%, shocking investors!
Profit
Before this earnings report, Dell's stock was on a tear, and analysts were raising their target prices. The P/E ratio was nearing a 30-times historical high, but the profit numbers just didn't meet expectations.
Dell blamed the lower gross margin on fierce competition in the enterprise server business, lower margins on AI servers compared to traditional ones, high logistics costs due to inflation, and the transition from H100 GPUs to H200s.
While these explanations make sense, they also expose Dell's Achilles' heel as an AI stock - their pricing power is weaker than $NVIDIA Corp(NVDA)$ 's!
That dampens Dell's potential to cash in on the AI boom, and it's understandable why some investors are fleeing the scene.
But looking to the future, Dell's profitability could rebound with continued demand for servers and the explosion of AI-powered PCs.
Dell is still a star in the AI universe!
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