Dell Technologies has surprised the stock market with its earnings report for the fourth quarter. The manufacturer of PCs and servers was able to increase its net profit compared to the same period last year from 606 million US dollars to 1.16 billion US dollars. The adjusted EPS was 2.20 US dollars - a significant increase from 1.80 US dollars the previous year. Investors are rewarding this with strong price gains and are enthusiastic about the quarterly figures.
With this value, Dell exceeded all expectations: Analysts had merely forecasted an EPS of 1.73 US dollars, while the company itself had made a forecast of 1.70 US dollars per share. According to "Barron's", the increase in profit by 19 cents was due to a lower than expected tax rate, while decreased operating costs and revenues slightly above plan accounted for the remainder.
However, Dell had to accept a decline in revenue from $25.04 billion the previous year to now $22.32 billion. Nevertheless, the company was within its own forecast range and above expert estimates, which had anticipated revenue of $22.17 billion.
While PC demand continues to be lackluster, Dell has been particularly impressive due to the increased demand for AI-optimized servers. According to COO Jeff Clarke, who is quoted in the press release on quarterly figures, the strong momentum in AI servers is continuing. Orders have increased by almost 40 percent sequentially, while the order backlog has almost doubled.
At the end of the last fiscal year, on February 2, Dell had an order backlog of $2.9 billion for AI servers. According to "Barron's," the company also has a promising pipeline of prospects that amounts to several times the current order backlog.
Dell's biggest problem at the moment is that the demand for AI servers exceeds the supply, Clarke says according to 'MarketWatch'. This is mainly due to the lack of availability of the corresponding chips, but this will change in the future. According to experts, Dell could establish itself as part of the rapidly growing AI market as the availability of AI-capable chips increases.
Dell COO Clarke is also convinced that the company is just at the beginning of its AI journey. According to him, Dell is uniquely positioned through its broad portfolio to support customers in the development of GenAI solutions that meet performance, cost, and security requirements.
Another Reason for Dell to Rejoice: The Prospect of Rising PC Sales
Despite the current geopolitical and macroeconomic climate causing major corporate buyers to remain "somewhat cautious," the company anticipates a refresh cycle in the near future. Laptops acquired during the COVID pandemic will need to be updated.
According to 'Reuters,' the data research company Canalys forecasts that the global PC market will experience stronger growth in 2024, following a slight increase already noted in the fourth quarter of 2023. Dell plans to capitalize on this growth by launching a series of new laptops and PCs designed for executing AI workloads, which are expected to be available in the second half of the year.
According to "Barron's," COO Clarke anticipates that by the end of fiscal year 2025, one in five PCs sold will be AI-capable. Investors react enthusiastically to Dell's quarterly figures and future plans: Dell's stock rises by as much as 29.92 percent to $122.99 in Friday trading on the NYSE.
Throughout the past year, the view has been established in the stock market that Dell could be among the winners of the AI hype. In the last twelve months, Dell's stock has risen an impressive 137.90 percent. Following the quarterly figures, the Swiss major bank UBS has raised the price target for Dell from 99 to 113 US dollars and maintained the "Buy" rating. Analyst David Vogt writes that the orders related to Artificial Intelligence (AI) did not disappoint this time. The strength in the AI server segment should contribute to a higher valuation of the shares.
