Dell (DELL.N) shares saw a dip of approximately 2% in extended trading on Thursday, following the company’s forecast of a decline in its adjusted gross margin rate for fiscal year 2026. This downturn is attributed to escalating expenses associated with constructing artificial intelligence (AI) servers. The PC business also faced headwinds due to subdued demand.
The Round Rock, Texas-based company’s announcement coincided with a $10 billion increase in its share buyback plan. Dell’s AI servers, which incorporate powerful chips from Nvidia (NVDA.O), are specifically engineered to handle the intensive computational needs of training large language models, similar to those that power chatbots like ChatGPT. The surging demand has benefited Dell and its competitors, including Super Micro Computer (SMCI.O).
Dell projects $15 billion in annual revenue from AI server shipments, a substantial 53% increase from the $9.8 billion revenue recorded in the year ending January 31. However, the costly production of these AI-driven servers is weighing on margins. Dell anticipates its annual adjusted gross margin rate to decline by approximately 100 basis points.
The company also revealed that its AI server backlog had reached roughly $9 billion as of February 27. This includes a new agreement with Elon Musk’s xAI startup. Dell’s forecast for annual adjusted profit is set at $9.30 per share, exceeding analysts’ estimates of $9.23, according to data collected by LSEG. The $103 billion midpoint of the company’s annual revenue forecast aligned with initial estimates.
Further complicating the landscape, sweeping U.S. trade tariffs on Chinese products pose another risk. Dell stated that it is carefully reviewing the tariff executive orders to gauge their impact on its operations and customers. The company’s Chief Operating Officer, Jeff Clarke, noted, “Whatever tariff we cannot mitigate, we view that as an input cost. As our input costs go up, it may require us to adjust prices.”
Research firm International Data Corporation revised its traditional PC forecast downward for 2025 and beyond, attributing the change to U.S. tariffs on China and the weakening market sentiment. For the fourth quarter ending January 31, Dell’s revenue reached $23.93 billion, slightly below estimates of $24.56 billion. However, the company reported adjusted per-share earnings of $2.68, which surpassed estimates of $2.53.
Dell’s infrastructure solutions group, which includes storage, software, and server offerings, saw a 22% revenue increase, reaching $11.35 billion. The client solutions group, which encompasses PCs, experienced a 1% revenue increase, totaling $11.88 billion.
