Dell shares soar 33% as AI server demand, price hikes power stellar quarter

In this March 22, 2006 file photo, Dell corporate logo at Novell's BrainShare convention in Salt Lake City, is shown. (AP Photo/Douglas C. Pizac, file)

Dell’s shares surged 33 per cent on Friday as the PC maker’s blockbuster results showed that its growing focus on AI servers was helping it capitalize on the data centre boom, making the company one of the biggest beneficiaries of the new technology.

The company, whose AI servers are crucial components in the global AI infrastructure build-out, is set to add US$68 billion to its market value of about US$206 billion, if gains hold.

A household name in the PC market, Dell has in recent years scaled up its AI hardware business. Dell’s AI server revenue of US$16.1 billion surpassed its PC unit’s US$14.6 billion in sales in the quarter.

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The company’s infrastructure solutions segment, home to both traditional and AI-optimized servers as well as other storage, software and networking solutions, has consistently eclipsed PC business revenue in the past four quarters.

“We’ve been following Dell a long time and never seen anything like this. Not only do they get an “A” for execution, but you can make an argument that Dell is even the best way to play AI out there,” Melius Research analysts said.

Dell’s outlook for “AI and traditional servers are still very conservative,” as the firm has stronger prospects for selling CPU racks to AI cloud providers like CoreWeave and Nscale, the brokerage said.

The blowout quarter lifted shares of server makers Super Micro Computer and Hewlett Packard Enterprise 16 and 12 per cent, respectively, while Dell’s PC rival HP also rose eight per cent.

Hewlett Packard Enterprise, which reports results on Monday, has also been prioritizing higher-margin product orders. But it has a smaller server business compared with Dell.

Dell Chief Operating Officer Jeff Clarke acknowledged the ongoing “supply constrained” environment, particularly concerning memory chips, but said that its customers were actively securing supply for extended periods.

The company has banked on balanced price hikes as well as its scale and strong supplier relationships to wade through the memory crisis. Strong returns from its AI server business are also helping cushion the blow to margins from the soaring memory prices.

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HP, which focuses mostly on PCs and printers, reported 13.2 per cent growth in its personal systems division, while sales in Dell’s PC business unit grew 17 per cent, driven by a Windows 11 refresh cycle and growing focus on AI PCs.

At least 13 brokerages raised their price targets on Dell stock following the results, giving it a median price target of US$255, according to data compiled by LSEG. That is up from US$170 before the report.

Dell is on track to record its biggest one-day percentage gain if gains hold. It has a 12-month forward price-to-earnings ratio of 20.21, compared with HP’s 8.39 and HPE’s 14.70.

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Reporting by Jaspreet Singh and Kanchana Chakravarty in Bengaluru; Editing by Rashmi Aich and Anil D’Silva