Dell raises annual AI server outlook after backlog hits $18.4B

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Dell Technologies Inc. has lifted its annual estimated figures for the leading artificial intelligence server market, a signal that sustained demand for the kind of machines required in the current data center boom persists.

Dell booked $12.3 billion worth of AI server orders in its fiscal third quarter that ended Oct. 31, the company said Tuesday in a statement. Dell shipped $5.6 billion of servers and finished the quarter with a backlog of $18.4 billion. The company raised shipment estimates for the year to $25 billion from $20 billion.

Rival vendors see AI orders soar amid fierce market competition

Rivals such as Super Micro Computer and Hewlett Packard Enterprise have also seen soaring AI-heavy orders, as cloud providers and enterprises rush to build systems that can train more complex models. Market research companies estimate that global spending on AI servers could exceed $200 billion annually by the end of the decade — another indication of the fierce competition among hardware suppliers to secure long-term contracts with hyperscalers.

Huge spending on AI data centers and work has fueled demand for machines made by companies including Dell, Super Micro Computer Inc., and Hewlett Packard Enterprise Inc. that use powerful chips to train and run AI models. But winning and filling those orders has led to higher costs for Dell, and the company is trying to make its AI server business more profitable. Operating margins in Dell’s infrastructure unit, which includes server and networking sales, were 12.4% during the period. Analysts, on average, said 11.2 percent, according to data compiled by Bloomberg.

The costs of memory chips needed for servers and PCs are rising much faster than is typical, Chief Operating Officer Jeff Clarke said in a conference call after the results were announced.

“We’re going to do everything we can to minimize the impact,” he said. “But the fact is, the cost basis is going up across all products. No one is more unique than others.”

Strong earnings and strategic leadership position Dell for AI growth

Dell’s overall gross margin was 21.1%, compared with the average estimate of 20.4%. The shares rose about 2% in extended trading after closing at $125.92 in New York. The stock had gained 9.3% this year before the announcement of the results.

Earnings, excluding some items, will be about $9.92 a share in the fiscal year ending in January. Sales are expected to be approximately $111.7 billion. In August, the company projected earnings of approximately $9.55 billion and sales of around $107 billion. Analysts, on average, projected a profit of $9.55 a share on revenue of $107.9 billion.

“AI momentum is accelerating in the second half of the year,” Clarke said in the statement, leading to “an unprecedented $30 billion in orders year to date.”

Total sales rose 11% to $27 billion in the third quarter, slightly below the $27.2 billion analysts had expected. Commercial PC revenue grew 5% to $10.6 billion but still fell short of consensus estimates. Earnings came in at $2.59 per share, excluding certain items, topping the projected $2.48.

The company has also appointed David Kennedy as its Chief Financial Officer, following his interim service in the role. 

Kennedy’s permanent appointment as CFO occurs as Dell navigates increased demand and operational risks. He was in charge of financial strategy during the company’s restructuring efforts and will likely be key to steering long-term investments in AI infrastructure while hitting profitability objectives.

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