Dell Shares Falls 18% as AI Investments Hit Margins

Dell Technologies’ shares fell by about 18% on Friday. The company expects its profits to take a hit due to heavy investments in AI technology.

If the losses continue, Dell could lose more than $21 billion in market value. Despite this drop, Dell’s stock has risen over 80% this year.

AI Investments

Dell, along with other companies, is spending a lot on expensive hardware to build advanced servers for AI tasks. These high costs are expected to hurt Dell’s profit margins this year.

Financial Outlook

The company, based in Round Rock, Texas, expects its adjusted gross margin rate to fall by about 150 basis points in fiscal 2025. Dell forecasted an adjusted profit per share of $1.65, plus or minus 10 cents, for the second quarter, which is lower than the $1.84 expected by analysts.

Morningstar analysts noted that sales of AI servers, which doubled to $1.7 billion in the first quarter, still make up less than 7% of Dell’s total revenue and are reducing overall margins. They added that the market is adjusting its high expectations for Dell’s gains from AI spending.

Revenue from Dell’s main client solutions group, which includes its PC business, remained flat, with consumer sales down 15%. Dell has been pricing its PCs competitively to revive the market after a long slump.

Comments from Dell

Chief Operating Officer Jeffrey Clarke mentioned on a post-earnings call that the PC business has been struggling for two years but is starting to stabilize and seek growth. He noted that strong promotions from the holiday season continued into the first quarter.