Dell Technologies (NYSE: $DELL) is a US tech company that sells personal computers, data storage hardware, software, network switches, computer peripherals, cameras, printers, and electronics made by other manufacturers.
On Thursday, May 30, 2024, Dell Technologies released its first quarter fiscal 2025 results to a negative market reaction amid rising AI investment costs.
Dell Technologies Q1 Results
For the first quarter, Dell Technologies reported revenue soared 6% Y/Y to $22.2 billion., beating estimates of $21.62 billion. It reported a diluted EPS of $1.32, a 67% Y/Y increase, while the adjusted EPS came in at $1.27, a 3% Y/Y decline, but above estimates of $1.23.
Other Financial Highlights
Dell Technologies reported a GAAP gross margin of 21.6% compared to a GAAP gross margin of 24% a year ago, while the non-GAAP gross margin came in at 22.2% compared to 24.7% the previous year.
The GAAP operating income fell 14% Y/Y to $920 million for a GAAP operating profit margin of 4.1% compared to 5.1% a year ago, while the non-GAAP operating income fell 8% Y/Y to $1.47 billion for a non-GAAP operating profit margin of 6.6% compared to 7.6% the previous year. Meanwhile, the GAAP net income rose 65% Y/Y but fell 18% Q/Q to $955 million, while the non-GAAP net income fell 4% Y/Y and 43% Q/Q to $923 million.
It ended the quarter with $1.04 billion in cash flow from operations and $7.9 billion from the past 12 months. As of the end of Q125, Dell Technologies had $7.3 billion in total liquidity.
During the first quarter, it returned $1 billion to shareholders via dividends and share buybacks.
Segment Performance
The Infrastructure Solutions Group (ISG) reported revenue of $9.2 billion, a 22% Y/Y increase, with a record $5.5 billion in servers and networking revenue, marking a 42% Y/Y increase.
Dell Technologies’ Client Solutions Group (CSG) reported revenue of $12.0 billion, remaining flat Y/Y as commercial client revenue rose 3% Y/Y to $10.2 billion.
Dell Technologies’ Q2 and FY25 guidance
Dell Technologies expects revenue of $23.5 to $24.5 billion in Q225, a 5% Y/Y increase at the midpoint. It expects the combination of ISG and CSG to rise 8% Y/Y with ISG forecast to grow in the mid-twenties.
Non-GAAP operating expenses are forecast to rise 3% Y/Y, while the operating profit margin is forecast to improve sequentially. Driven by Q/Q ISG growth and margin rate expansion in the storage business. Dell Technologies expects an adjusted EPS of $1.65 with a $0.10 margin.
For the full year, Dell Technologies expects revenue to rise $93.5 to $97.5 billion, an 8% Y/Y increase at the midpoint. ISG is forecast to grow by 20%+, while CSG is expected to grow in the low single digits. It expects the combination of ISG and CSG to increase 11% Y/Y at the midpoint. Dell expects the no-GAAP gross margin to fall by around 150 basis points, driven by the higher cost of AI servers and inflationary input costs. It expects both ISG and CSG operating margin rates of 11-14% and 5-7%, respectively.
The tech giant expects Infrastructure and Operations to come in at around $1.4 billion, while the adjusted EPS is forecast at $7.65 with a $0.25 margin, a 7% Y/Y increase at a midpoint.
Dell Technologies Unveils AI Innovations and Collaborations
In its Q2 results, the company highlighted the AI solutions and collaborations unveiled at the Dell Technologies World event on May 20, 2024. Among them is the Dell AI Factory, which combines Dell products, services, and solutions optimized for AI workloads in collaboration with partners such as Meta, Microsoft, NVIDIA, and Hugging Face.
Their collaboration with NVIDIA includes the new PowerEdge XE9680L server, which features direct liquid cooling and supports 72 NVIDIA Blackwell GPUs in a single rack, 33% more GPU density per node than the previous generation.
They also highlighted the Dell PowerStore software upgrades that offer customers a 66% performance boost, native sync replication for file and block, and improved multiload data mobility features.
Dell also unveiled a slew of new AI PCs that feature CoPilot+ and are powered by Snapdragon® X Elite and Snapdragon® X Plus processors for improved battery life and AI performance.
Dell Technologies (DELL) Stock Performance
Following the FY25 margin contraction forecast, DELL fell 17.75% to $139.76 as of 09:35 AM EDT on Friday. The market cap has shrunk by over $20 billion since the Q125 results and now stands at around $100 billion. Despite the recent slump, DELL is still up 87.53% YTD and 213.64% in the past 52 weeks.
The stock has experienced huge movements in recent months, with a high of $179.70 and a low of $45.16. it above both the 50 and 200 DMA of $129.67 and $89.78, respectively.
Analysts’ Outlook on Dell Technologies
Analysts are still optimistic about DELL, with thirteen of them giving the stock an overall strong buy rating. They forecast a wide range for the stock, with a high of $185 and a low of $97. Their average price target of $155.25 is an 11.92% upside from the most recent price.
Should You Invest In DELL In 2024?
Dell Technologies has immersed itself fully in the AI industry, making huge investments to stay ahead of the pack. While Dell aims to place AI technologies into the homes and offices of everyday people, its main focus is on AI for enterprises. Its commitment to AI servers has seen the company forecast a margin contraction in fiscal 2025. However, on a long-term basis, this investment makes sense.
With AI expected to have an $11 trillion impact on global GDP, there is plenty of opportunity for Dell to recoup their initial investment. By positioning itself as the go-to infrastructure provider for AI solutions, Dell essentially acts as the shovel provider in a gold rush. While there may be short-term pain, the long-term forecast is potentially lucrative for investors seeking exposure to the budding AI industry.
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