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Dell Technologies delivered second-quarter earnings that exceeded Wall Street’s expectations on both revenue and profit, fueled by explosive demand for AI servers. Yet, despite the upbeat results, shares of Dell slipped more than 5% in extended trading on Thursday after the company issued a weaker-than-expected profit outlook for the third quarter.

Q2 Performance Surpasses Estimates

For the quarter, Dell reported:

• Adjusted EPS: $2.32, beating the $2.30 estimate.
• Revenue: $29.78 billion, topping forecasts of $29.17 billion.

Revenue rose 19% year-over-year, led by a surge in the company’s Servers and Networking division, which climbed 69% to $12.9 billion. This growth was powered by AI servers, with Dell shipping $10 billion worth of AI systems over the past two quarters.

The company also raised its full-year guidance, projecting revenue of $107 billion at the midpoint and diluted EPS of $9.55, ahead of Wall Street’s estimates of $104.6 billion and $9.38 per share.

Q3 Outlook Disappoints Investors

Despite the strong quarter, Dell’s third-quarter profit forecast fell short of analyst expectations. The company guided EPS at $2.45, below the consensus of $2.55, though it expects revenue to hit $27 billion, higher than projections of $26.1 billion.

Dell attributed the softer earnings outlook to seasonality, especially in its storage business, where revenue declined 3% to $3.86 billion, missing estimates of $4.1 billion.

AI Servers Take Center Stage

Dell has positioned itself as a major beneficiary of the AI boom, sourcing advanced chips from Nvidia and building servers for end-users such as cloud provider CoreWeave. Looking ahead, the company said it expects to ship $20 billion worth of AI servers in fiscal 2026—double last year’s sales.

This pivot has made Dell’s data center business its main growth engine, overshadowing its traditional PC segment. The Client Solutions Group, which includes enterprise PC sales, generated $12.5 billion in revenue, up just 1% year-over-year and showing much slower growth compared to servers and networking.

Capital Allocation and Shareholder Returns

Dell continues to return capital to shareholders, spending $1.3 billion on share repurchases and dividends in the second quarter.

Market Context

The results highlight the company’s balancing act: while AI infrastructure is driving a major wave of growth, seasonal declines and weakness in storage are dragging on near-term profits. With shares already up significantly in 2024, some investors see Dell’s conservative Q3 guidance as a signal to lock in gains, fueling Thursday’s after-hours drop.

Still, with AI spending accelerating globally and Dell doubling down on its server business, many analysts believe the long-term growth story remains intact—even if the next quarter looks softer.

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