``` Two years ago, AI demand was greatly underestimated! Dell sharply raises performance outlook for the next four years, stock price jumps over 6% at one point. ```

``` Two years ago, AI demand was greatly underestimated! Dell sharply raises performance outlook for the next four years, stock price jumps over 6% at one point. ```

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Dell Technologies has added fuel to the recent renewed artificial intelligence (AI) craze driven by OpenAI.

On Tuesday, October 7, Eastern Time, due to stronger-than-expected demand for AI products, Dell significantly raised its performance forecasts for the next four years, nearly doubling its annual revenue growth expectation to 7%-9%, and raising its earnings per share (EPS) growth target to above 15%. Dell COO Jeff Clarke admitted that management underestimated the momentum of the AI market: he said:

“Two years ago, our estimate of the AI market size was completely off, and now it's only going to get bigger.”

After raising its performance forecast, Dell’s stock opened this Tuesday up 4.8%, surged more than 6.1% in early trading, then pulled back, and briefly turned lower toward the end of the morning session. Super Micro Computer (SMCI) and Hewlett Packard Enterprise (HPE), which also sell AI servers, also saw their shares spike, surging more than 5% and 4%, respectively, in early trading.

AI Server Business Drives Growth Expectations

Before Tuesday’s investor meeting in New York, Dell released an updated “long-term financial framework,” raising its annual revenue growth expectation significantly from the previous 3%-4% to 7%-9%, and its adjusted EPS growth target from 8% or higher to 15% or higher. The new forecasts will continue until fiscal year 2030.

Dell’s infrastructure business has benefited from strong demand for AI servers from new generation cloud service providers like CoreWeave and Musk’s x.AI. Dell has also signed related agreements with government entities such as the US Department of Energy and Abu Dhabi-based AI company G42.

Clarke stated that Dell’s traditional business—including conventional servers and PCs—will post “low- to mid-single-digit” growth. Although investors welcome the growth in AI server sales, the cost of rapidly launching devices based on the latest chips is eroding profit margins.

Clarke revealed that Dell’s AI server business is expected to achieve “mid-single-digit operating margins,” a level he called “acceptable.” The business is contributing to the company’s earnings. The company has an opportunity to increase profit margins by selling to more large enterprise clients and encouraging AI customers to purchase Dell's other higher-margin products such as storage and networking equipment.

Financial results released by Dell last month show that for the company’s fiscal Q2 ended August 1 this year, the operating margin of the infrastructure group, including server and networking sales, was 8.8%, below analysts’ expectations.

Strong Orders Support Positive Outlook

In its fiscal Q2 ended August 1, Dell received $5.6 billion in AI server orders, down from $12.1 billion in the previous quarter. The company delivered $8.2 billion worth of servers, and had a quarter-end backlog worth $11.7 billion.

Dell CEO Michael Dell said in a statement on Tuesday:

“Customers are eager for AI as well as the compute, storage, and networking we provide to enable large-scale intelligent deployments. We have successfully converted this demand into growth and robust cash flow, most of which has already been returned to shareholders. As AI continues to expand into enterprises and governments globally, the future opportunities are limitless.”

Dell’s statement said that its engineering, deployment, ecosystem, and other services “make it a leader in AI infrastructure solutions.” Strong performance of the server business has helped Dell shares rise 26% so far this year as of the close of Monday.

Commitment to Improving Shareholder Returns

Dell reiterated its performance outlook for the current quarter and the next fiscal year ending January 2026.

In its quarterly earnings release last month, Dell stated it plans to deliver $20 billion of AI servers in fiscal 2026, double last year’s sales.

Also on Tuesday, Dell announced an extension of its commitment to increase its quarterly dividend by 10% or more annually, extending the term to fiscal 2030. Dell also pledged to continue returning over 80% of its adjusted free cash flow to shareholders via stock repurchases and dividends.

As a key customer of Nvidia, Dell procures chips from this AI chip leader and builds computers around them, selling them to cloud providers such as CoreWeave and end users such as Musk’s AI startup xAI.

Risk Warning and DisclaimerThe market is risky, and investment needs to be cautious. This article does not constitute personal investment advice and does not take into account the unique investment objectives, financial situation, or needs of individual users. Users should consider whether any opinions, views, or conclusions in this article fit their particular circumstances. Investing accordingly is at your own risk. ```