Dell (DELL) Stock: Mixed Q3 Results But Strong AI Sales Drive Optimistic Outlook

TLDR

• Dell missed Q3 revenue expectations at $27.01 billion versus $27.13 billion estimated but beat earnings at $2.59 per share versus $2.47 expected
• The company raised AI server shipment forecast to $25 billion for fiscal 2026, up from $20 billion previously
• Dell expects Q4 revenue of $31.5 billion versus analyst estimates of $27.59 billion, driven by $9.4 billion in AI server sales
• AI server backlog reached $18.4 billion with $12.3 billion in new orders during the quarter
• Dell appointed David Kennedy as permanent CFO and raised full-year revenue guidance to $111.7 billion from $107 billion

Dell Technologies reported third-quarter earnings that painted a mixed picture. Revenue came in at $27.01 billion, falling short of the $27.13 billion analysts expected. But earnings per share of $2.59 beat estimates of $2.47.

The stock jumped 5% in after-hours trading. The reason? Dell’s fourth-quarter forecast blew past expectations.

Dell Technologies Inc., DELL

The company expects Q4 revenue of about $31.5 billion. Analysts had predicted only $27.59 billion. Dell also raised its earnings outlook to $3.50 per share versus the $3.21 consensus.

The PC business continues to struggle. Client Solutions Group revenue reached $12.48 billion, up just 3% year-over-year. The number missed analyst expectations of $12.65 billion.

Commercial laptop and PC sales dropped 7% compared to last year. Consumer demand remains weak as buyers wait for compelling reasons to upgrade.

AI Servers Take Center Stage

AI infrastructure is driving Dell’s optimism. The company now expects $25 billion in AI server revenue for fiscal 2026. That’s up from the previous forecast of $20 billion.

Dell shipped $5.6 billion worth of AI servers in the third quarter alone. The company’s AI server backlog reached $18.4 billion, fueled by $12.3 billion in new orders.

Major customers include Elon Musk’s xAI, CoreWeave, the U.S. Department of Energy, and Abu Dhabi’s G42. Dell also announced a deal with Iren to supply Nvidia-based GB300 systems that Microsoft will eventually rent.

The company expects to sell $9.4 billion of AI servers in the fourth quarter. That figure doesn’t include the Iren deal announced in November.

Pressure on Margins

Dell’s Infrastructure Solutions Group reported $14.11 billion in sales, meeting analyst expectations. Server and networking revenue jumped 37% year-over-year to $10.1 billion.

But margins face pressure from rising memory chip costs. Chief Operating Officer Jeff Clarke warned that DRAM and NAND prices are increasing at unprecedented rates.

Dell may have leverage to pass costs along. Demand for AI servers exceeds available supply, giving the company pricing power.

The company appointed David Kennedy as permanent CFO. Dell also raised its full-year revenue guidance to between $111.2 billion and $112.2 billion, up from previous expectations of $105 billion to $109 billion.

Net income reached $1.54 billion, or $2.28 per diluted share, compared to $1.17 billion a year ago. Dell spent $1.6 billion on share repurchases and dividends during the quarter.

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