- Dell’s market value is threatening to drop 20%, or $21 billion, if losses continue.
- Heavy investments in AI hardware are having negative impact on the American profit margins and it is seeking for growth.
Dell Technologies saw a significant drop of about 18% in its shares on Friday due to expectations of substantial AI investments impacting its quarterly profit.
Impact of AI Investment on the Dell’s profit
As more businesses compete to adopt AI, a group of companies, including Dell, have been investing heavily in pricey hardware to build-out advanced servers with the ability to process complex artificial intelligence tasks.
The Round Rock, Texas-based company expects adjusted gross margin rate to decline about 150 basis points in fiscal 2025. It predicted adjusted profit per share of $1.65, plus or minus 10 cents, for the second quarter, versus LSEG estimates of $1.84 at the time Dell reported results on Thursday. “AI-server sales continue to contribute only a small percentage to the firm’s top line and are margin-dilutive,” Morningstar analysts wrote in a note. Although shipments of the company’s AI-optimised servers more than doubled to $1.7 billion in the first quarter, they represented less than 7% of the total revenue.
Also read: DELL introduces AI-capable products, ties deeply with NVIDIA
Also read: Dells unveils AI-enabled PCs, Nvidia-compatible servers
The company’s response to the challenge
Dell has turned to pricing its models competitively in the consumer PC segment as the PC market recovers from a slump lasting for 12 months. “PC business has been in a downcycle for two years and it’s beginning to stabilise and look for growth,” said Jeffrey Clarke, Chief Operating Officer of the company, on a post-earnings call on Thursday. “The strong promotions that we saw through the holiday season continued into Q1.”
