Dell's AI Gamble Pays Off, But Challenges Loom

The Surprising Twist in Dell's AI Journey

Dell Technologies, once known solely as a PC powerhouse, has emerged as a key player in the booming AI market. However, the company's recent earnings report revealed a surprising twist - a slowdown in its AI server revenue, sending its stock tumbling by as much as 12% early Wednesday. This unexpected development came as Dell took a cautious approach to its forecast for investors, warning that AI growth "will not be linear." According to Dell COO Jeffrey Clarke, "AI is a robust opportunity … and interest in our portfolio is [at] an all-time high with no signs of slowing down. That said, this business will not be linear, especially as customers navigate an underlying silicon road map that is changing."

Navigating the Shifting AI Landscape

Dell's AI server revenues fell 9% in the third quarter from the prior period, contributing to the company's lower full-year outlook for its fiscal year 2025 ending in February. This slowdown was largely due to a shift in customer demand towards Nvidia's latest Blackwell AI chips, which have faced some delays."We saw in Q3 a shift and a pretty rapid shift of the orders moving towards our Blackwell design," said Clarke, noting that orders for its servers with the Blackwell design make up "a significant portion" of its backlog. This nonlinear growth in the AI space has caught Dell off guard, but the company remains optimistic about the long term potential.

Dell's AI Ambitions: A Double-Edged Sword?

Despite the challenges, Dell's AI pipeline is estimated to be slightly below $20 billion, and the company was the first to ship a server using Nvidia's Blackwell AI chips. This highlights the company's commitment to the AI market, but also the risks it faces as it navigates the shifting landscape. According to TD Cowen analyst Krish Sankar, the decline in Dell's AI server revenue in the most recent quarter was "mostly due to the well-understood Blackwell pushouts." However, Sankar also noted that Dell's rising backlog and orders of AI servers worth an estimated $8 billion for the third quarter "are a better representation of actual demand."

The Road Ahead: Adapting and Innovating

As Dell continues to expand its AI offerings, the company must adapt to the changing needs of its customers and the evolving AI landscape. With a formal fiscal 2026 outlook on the horizon, Dell is poised to showcase its ability to navigate these challenges and capitalize on the growing demand for AI-powered solutions.

Dell CEO Michael Dell said on Nov. 17 that the company had officially shipped its first PowerEdge server using Nvidia's Blackwell AI chips, further solidifying its position in the AI market. "We were the first to ship a GB200 design [a server using Nvidia's most advanced Blackwell configuration] in the marketplace," Clarke said on the call. "Blackwell is in production. It will continue to ramp and we'll be ready."Overall, Dell's third quarter results for the three months ended Nov. 1 were mixed, with earnings of $2.15 per share beating expectations but quarterly revenue of $24.4 billion falling short of the anticipated $24.6 billion, according to Bloomberg consensus data. As the company navigates the shifting PC and AI landscape, its ability to adapt and innovate will be crucial in determining its long-term success.