Dell Artificial Intelligence: not only servers, the challenge is on computers

On the one hand, the demand for servers for Artificial intelligence (Ai) training rising (although - according to some - not as much as it should). On the other, the Ai-enabled PCs also leading the way so far. This is - broadly speaking - how the current business environment of Dell Technologies can be summarised.

Yes, the business. To better understand the situation of the historic computer company - listed on the Nasdaq - it is first necessary to recall its corporate purpose. The group is essentially characterised by three areas: the Infrastructure solutions group (Isg), the Client solutions group (Csg) and the Other business. The first division encompasses various activities: from hi-tech products for data storage to network solutions and the world of services and servers. Precisely the latter - in the wake of the boom in generative artificial intelligence - have become a primary driver for the company. Servers are, for instance, used to train Ia itself or support its inference activity. The prerogative of the second division - instead - are PCs, notebooks and peripherals. Then - also in this case - services to support the use of the same products. Finally, the third - more residual - area of Other business. This includes solutions such as those for computer security.

Well: in the first nine months of the 2024-2025 financial year (ended 31 May last year), Isg's turnover stood at USD 32.2 billion. That of Csg, on the other hand, came to USD 36.5 billion. Other business, for its part, was worth 2.9 billion. In view of such numbers, it is clear how - in terms of revenue - PCs and notebooks are more relevant than servers and storage solutions. However, the discourse changes when we look at operating income. Here Isg - again in the first nine months of 2024-2025 - boasts a profitability of 3.5 billion while Csg's is 2.2 billion. Not only that. The dynamics of the latter were - compared to the same period of the previous fiscal year - down (operating income stood at 2.8 billion). On the contrary, the Infrastructure solutions group increased in both turnover and profitability. In other words: the data - albeit referring to a single period - indicate the relevance of Isg. In particular, on the back of the artificial intelligence boom.

That said, however, the situation is more complex than described. The proof? It can be seen in the stock market reactions of Dell Technologies' shares to the publication of the various quarterly reports. In the first quarter of the current fiscal year, revenues and profitability increased. The turnover was 22.2 billion dollars (+6% compared to the same period a year earlier) while the diluted EPS settled at 1.32 dollars (+67%). Not only that. Revenues beat the consensus and net profitability exceeded the company's own forecasts. The revenue of the Infrastructure solutions group (9.2 billion) also rose above estimates. In short: the context should have made Dell Technologies' share price jump upwards. On the contrary, in the session following the announcement of the numbers, the shares dropped 17.87%. A thud that - combined with the one on the day of the quarter's publication and the one that followed - led to an overall drop of 28.45%. What happened? First and foremost, the lower than expected second quarter earnings per share outlook had an impact. In addition: the operating income of Isg - to which the servers for Ai are attributed - in relation to the area's revenues dropped - compared to a year earlier - from 9.7% to 8%. This is a twofold trend that - inevitably - has led investors to have doubts about the profitability of servers linked to artificial intelligence. True! Shipments of these products - the group indicated - increased quarter on quarter by more than 100%. Moreover, several business houses did not give too much weight to the individual numbers (Evercore, for instance, spoke of a 'modest hiccup'). That said, however, concerns about server margins on Ai remained. Which, given that Dell Technologies had rallied on the stock market mainly due to expectations about the latter, led to profit-taking.

Sales on the stock, however, did not take place at the time of the half-yearly report. On the contrary: the share price rose by 4.33%. On that occasion, the Texan company posted the value of USD 47.3 billion (+8% ) on the first line of the income statement. Operating income, for its part, was in line (+1%). Consolidated net profit, finally, rose 74%. A mix of data that - also because in the meantime Dell Technologies' shares, after the thud of the first quarter, had begun a sideways trend - was in fact appreciated by operators. Those same investors who, once again, grumbled upon learning the numbers for the third quarter of 2024-2025. In the present case, the share price - again in the session following the publication of the figures - fell by 12.25 per cent. Artificial intelligence servers to blame again? On closer inspection, the 'lit' match passed into the hands of the Client Solutions Group area. In general, Dell Technologies again showed an upward trend in the income statement. Net sales increased by 10%, operating income by 12%, and diluted earnings per share (EPS) by 16%. However: although the Isg reported rising sales and operating profitability, the Csg, on the other hand, was marked by a decline in operating income. This fell from EUR 965 million (third quarter 2023-2024) to EUR 694 million (same quarter 2024-2025). Here, on closer inspection, sales of personal computers and note books (included in Csg) weighed most heavily. The sector - is Statista's indication - had experienced a real boom in 2020 (+14.7% for tablets) in the wake of Covid. Subsequently, there was a slowdown. Globally, for instance, global revenues from tablets remained in the red in 2023. The expectation? It was for a strong recovery last year. Instead, 2024 (+3.8% global PC sales according to Idc) was an interlocutory year, where - in the third quarter - Dell Technologies suffered from industry weakness. How so? Because, among other things, Ai has not yet really taken centre stage in personal computers. As a result: investors - after fleecing the group, in the first quarter, on artificial intelligence and servers - implemented the same method with reference to PCs. In short: the claim - even in the face of pressure on the company's gross margin - is that the artificial intelligence narrative will turn into sales (and profitability) in both servers and PCs.