Shares of Dell Technologies fell about 14% in pre-market trading on Friday as the personal computer and server maker expects weighty investments in artificial intelligence to drag down its quarterly profit.
Dell is on track to lose more than $17 billion in market value if pre-market losses continue. This year, the value of the shares has more than doubled.
Companies including Dell are investing heavily in steep hardware to build advanced servers with the ability to process elaborate AI tasks as more companies rush to adopt the technology.
High costs associated with popular AI servers are also expected to hurt the company’s annual margin.
The Round Rock, Texas-based company expects its adjusted gross margin rate to decline by approximately 150 basis points in fiscal 2025. It forecast adjusted earnings per share of $1.65 plus or minus 10 cents in the second quarter, compared with LSEG estimates of $1.84 at the end of the day when Dell announced its results on Thursday.
“AI server sales continue to represent only a compact percentage of the company’s earnings and are margin dilutive,” Morningstar analysts wrote in a note.
While shipments of AI-optimized servers more than doubled in the first quarter to $1.7 billion, they accounted for less than 7% of total revenue.
“The market is being held back by unrealistic expectations about Dell’s ability to capitalize on AI spending,” Morningstar analysts said.
Revenues from the company’s core consumer solutions group, which includes its PC division, remained flat, with its consumer sub-segment down 15%.
As the personal computer market emerges from a multi-year crisis, Dell has begun to price its models more competitively in the consumer computer segment.
“The PC industry has been in a downturn for two years, is starting to stabilize and is looking for growth,” Chief Operating Officer Jeffrey Clarke said Thursday on a post-earnings earnings call.
“The robust promotions we saw during the holiday season continued into the first quarter.”
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