Artificial Intelligence surge boosts Dell's progression
In a noteworthy development, tech giant Dell has announced its Q2 results, showcasing continued growth in its business. The company's revenue for the quarter reached $29.8 billion, surpassing expectations of $29.2 billion, and its adjusted earnings per share were $2.32, beating estimates of $2.30.
One of the key drivers behind Dell's growth is the boom in servers for Artificial Intelligence (AI). This trend is contributing significantly to Dell's long-term growth, as the company predicts that its AI server business will generate $20 billion in revenue by 2026, an increase from its previous estimate of $15 billion.
Dell's foray into the AI server market has been successful, with AI startup xAI, backed by tech billionaire Elon Musk, among its customers. However, the company did not name specific AI startups as its customers in the search results. The exceptional demand and the large base of outdated servers to be replaced are driving Dell's expectations for $20 billion in AI server sales by 2026.
While Dell's traditional PC business grew by only 1% to $12.5 billion in the latest quarter, the growth in demand for specialized servers needed for compute-intensive AI applications is benefiting the company and other providers.
The growth in Dell's Q2 revenue can be attributed to its various business segments, not just the AI server business. The company has raised its annual forecast to a range of $105 to $109 billion, up from its previous forecast of $101 to $105 billion.
However, the AI server segment is not without its challenges. High production costs and intense competition are putting pressure on providers' margins in this segment. As a result, Dell's stock fell more than 4% after-hours on Thursday due to a disappointing outlook for the third quarter that missed analysts' expectations.
In contrast, HP reported surprisingly strong quarterly results on Wednesday, thanks to growing demand for AI computers. Dell's third-quarter revenue outlook is $26.5 to $27.5 billion, above analysts' expectations.
The growth in demand for specialized servers needed for compute-intensive AI applications remains a significant factor for Dell and other providers. As AI continues to permeate various industries, it is expected that the demand for AI servers will continue to grow, providing opportunities for companies like Dell to capitalize on this trend.
