Dell Technologies (NYSE: DELL) posted third-quarter earnings for fiscal 2025 that delivered mixed results. Revenue rose 9.3% year-over-year to US$24.37bn but fell short of analysts' consensus estimates of US$24.66bn. Adjusted earnings per share (EPS) landed at US$2.15, exceeding expectations of US$2.07.
The Infrastructure Solutions Group (ISG), buoyed by robust demand for AI servers, was a standout performer, reporting a 34% revenue increase to US$11.4bn. Within ISG, servers and networking revenue soared 58% to US$7.4bn, highlighting Dell’s strength in meeting AI-related demand.
However, challenges emerged in Dell’s Client Solutions Group (CSG), which saw revenue fall 1% year-over-year to US$12.1bn. Consumer revenue plunged 18% to US$2bn, dragged down by weak demand for PCs and stiff competition.
Other businesses contributed to the headwinds, with revenue declining 41% year-over-year to US$867m, falling below analyst expectations.
Reaction
Investors reacted sharply to Dell’s revenue miss and cautious fourth-quarter guidance, sending shares plummeting 11% in after-hours trading. This marked a stark reversal for a stock that had gained 85% year-to-date through Tuesday’s close.
Shares are currently 12.25% lower at US$124.38.
Dell’s forecast for fourth-quarter revenue between US$24bn and US$25bn fell below Wall Street’s expectation of US$25.57bn. Similarly, its EPS projection of US$2.50 missed the consensus of US$2.65.
“While Dell remains a leader in AI infrastructure, the near-term softness in its traditional PC segment and delays in AI server shipments have sparked concern,” noted analysts at Deutsche Bank, who attributed the reaction more to timing issues than long-term problems.
Earnings call
The earnings call following the results highlighted the company’s strong performance in AI-driven markets and infrastructure.
Jeff Clarke, COO, underscored the momentum in AI servers, with the company shipping $2.9bn worth in Q3 and achieving a five-quarter pipeline growth of over 50%. Clarke attributed this success to Dell’s engineering expertise and ability to offer scalable solutions tailored to enterprise and Tier 2 cloud service providers.
However, he warned of a “non-linear” trajectory for AI-related business as customers adapt to evolving silicon roadmaps.
Additionally, the company reported steady growth in traditional servers, attributed to data centre modernisation.
Outlook
Despite current headwinds, Dell executives remain optimistic about fiscal 2026. Clarke suggested that a significant PC refresh cycle, driven by the Windows 10 end-of-life approaching in 2025 and advancements in AI-enhanced PCs, could provide a tailwind.
Demand for AI servers is expected to accelerate, alongside a recovery in traditional server markets.
Analysts are divided on the stock's trajectory. While some, like Deutsche Bank, view the sell-off as overdone, others warn that Dell faces stiff competition and unpredictable customer spending patterns in the AI and PC markets.
