Have you ever watched a stock drop the earnings report and thought “this is going to be ugly” – only to see it pop 3% after the bell? That was me yesterday with Dell.
At first glance, the headline wasn’t pretty. A slight revenue miss for the third quarter. The PC business still looks like it’s recovering from a hangover. But then management started talking about the fourth quarter and, honestly, my jaw dropped a little.
They’re guiding to roughly $31.5 billion in sales for Q4 – that’s almost $4 billion above what the Street was modeling. And the driver? Artificial intelligence servers. A lot of them.
The Quarter in One Sentence
Dell beat on the bottom line, missed the top line by a hair, but the real story is the AI-fueled guidance that completely overshadows everything else.
Here’s the quick snapshot:
- Adjusted EPS: $2.59 (beat $2.47 estimate)
- Revenue: $27.01B (tiny miss vs $27.13B expected)
- Q4 revenue guide: ~$31.5B (crushes $27.6B consensus)
- Q4 EPS guide: $3.50 (well above $3.21 expected)
- Full-year AI server expectation raised from $20B to $25B
Put another way – Dell is now expecting to ship about nine billion dollars worth of AI-optimized servers in a single quarter. That’s not pocket change.
Why This Matters More Than the Miss
Let’s be real: nobody is going to remember the 0.4% revenue miss in six months. What people will remember is that Dell just became one of the clearest public proxies for the speed of the AI infrastructure build-out.
In my view, this report did something few earnings calls manage – it shifted the entire narrative overnight from “is the AI capex wave for real?” to “how fast is it actually accelerating?”
And the answer, if Dell’s order book is any indication, is pretty darn fast.
Breaking Down the AI Explosion
Dell’s Infrastructure Solutions Group – the part that sells servers and storage – posted $14.1 billion in revenue. Right on consensus. But dig one layer deeper and things get interesting.
Servers & networking jumped 37% year-over-year. Inside that number: $5.6 billion came from AI-optimized systems in Q3 alone. That’s already more than many analysts thought Dell would do for the entire year not long ago.
Management now expects $9.4 billion – yes, billion with a B – of AI server revenue in the current quarter. And that figure excludes a freshly-announced deal with Italian neocloud provider Iren for next-generation Nvidia GB300-based systems destined for a very large customer that rhymes with Schmicroschmoft.
The AI server market is proving to be even larger and moving even faster than we originally anticipated.
– Dell management team, essentially
Translation: the backlog is massive and still growing.
Who Is Actually Buying All These Servers?
One of the more fascinating parts of the story is the customer mix.
Unlike some competitors who live and die by the big hyperscalers (think Amazon, Google, Meta, the usual crowd), Dell’s AI business is surprisingly diversified right now:
- Large enterprises building private AI clouds
- Governments and defense contractors
- Fast-growing “neocloud” providers like CoreWeave, Crusoe, Lambda, etc.
- Even some tier-2 cloud players expanding aggressively
In other words, Dell isn’t completely beholden to the budgeting whims of four or five mega-cap companies. That’s a meaningful differentiator when analysts start worrying about a potential pause in hyperscaler spending next year.
The PC Business – Yes, It Still Exists
I’d be remiss if I didn’t at least touch on the consumer and commercial PC side of the house. Client Solutions Group revenue came in at $12.48 billion – up 3% year-over-year but a touch below the $12.65 billion expected.
Commercial laptops actually grew, while consumer remains soft. Nothing earth-shattering here. The PC replacement cycle is still chugging along slowly, and the much-hyped “AI PC” refresh hasn’t really kicked in yet for most corporations.
Frankly, after hearing the AI server numbers, I almost forgot Dell still sells laptops.
What the Raised Guidance Really Tells Us
Full-year revenue is now expected around $111.7 billion – that’s roughly $4.7 billion higher than the prior guide. Almost the entire uplift comes from AI systems.
Perhaps more importantly, management sounded confident that the AI server market is still supply constrained. In plain English: demand continues to outstrip the industry’s ability to ship Nvidia GPUs and everything that goes around them.
When was the last time we saw a major hardware cycle where the bottleneck wasn’t demand but supply – and that situation was described as likely to persist well into next year?
Valuation Reality Check
After the post-earnings pop, Dell is trading around 19× forward earnings – hardly nosebleed territory for a company growing revenue double-digits and with a massive AI tailwind.
The company also continues to aggressively buy back stock – $1.6 billion returned this quarter alone between dividends and repurchases. Free cash flow remains robust, and the balance sheet is in good shape.
Some investors worry about gross margin pressure as the mix shifts heavily toward lower-margin AI servers. Fair point. But if the volume ramp is this dramatic, the absolute dollar profit growth can more than make up for a few points of mix compression.
The Bigger Picture for AI Infrastructure
Look, I’ve been around tech long enough to have lived through several “next big thing” cycles that eventually flamed out. But this one feels different.
When a company like Dell – not exactly known for sandbagging guidance – raises its AI outlook by 25% in a single quarter and still says demand is outstripping supply, that’s the kind of data point that makes you sit up and pay attention.
We’re still in the early innings of a multi-year build-out. Power constraints, data center construction timelines, and GPU supply will remain gating factors for some time. But every quarter we get another confirmation that the major players – enterprises, governments, cloud providers new and old – are dead serious about deploying generative AI at scale.
And Dell, somewhat quietly, has positioned itself right in the middle of that build-out.
Final Takeaway
The Q3 revenue miss? Ancient history by breakfast tomorrow.
The $9.4 billion AI server quarter that’s apparently already in the bag? That’s the story investors will be talking about for months.
If you’ve been waiting for concrete evidence that the AI capex tsunami is not only real but accelerating, Dell just handed it to you on a silver platter.
Sometimes the best earnings reports aren’t the clean beats – they’re the ones that force you to rip up your model and start over with a much bigger number.
Last night was one of those nights.
