Dell's Fourth Quarter Performance Mixed, Profit Margin Expected to Decline in Fiscal Year 2026!

TradingKeyFeb 28, 2025 2:48 AM

TradingKey - Dell Technologies (DELL) reported Q4 profits that beat expectations. However, revenue fell short of forecasts. The company also predicts a decline in profit margins for fiscal year 2026.

Q4 Revenue

Dell's Q4 revenue was $23.9 billion, below the market expectation of $24.56 billion. However, earnings per share (EPS) were $2.68, exceeding the market expectation of $2.53. Additionally, the company announced a favorable $10 billion increase in its stock repurchase plan.

FY2026 Forecast

The company expects a decline in profit margins, primarily due to rising AI server manufacturing costs and market competition. Consumer PCs are still in a cyclical recovery phase with weak demand. The midpoint of the full-year revenue forecast for FY2026 is $103 billion, roughly in line with market expectations. Overall, the earnings report and guidance were mixed, and Dell's stock fell 6.76% to $107.83 on the day.

Business Segment Insights

ISG (Infrastructure Solutions Group): This segment, focused on server products, accounts for 46% of Dell's total revenue. AI servers are a key focus, with new products like the XE7740 and XE9685L supporting GPUs and CPUs from NVIDIA, AMD, and Intel. Dell benefits from the growth in data center business and capital expenditure competition among tech giants. Dell has partnered with AMD to use inference-based MI300X GPU chips in AI server products, balancing the technical and customer concentration risks associated with NVIDIA. The AI server market is expected to grow at a CAGR of 28% from 2025 to 2030, indicating significant growth potential.

CSG (Client Solutions Group): This segment, which includes PC products, accounts for about 48% of revenue. Sales of consumer PCs have been declining since FY2023 due to cyclical adjustments and are expected to grow only by FY2027. However, commercial PCs have shown growth since Q1 FY2024, driven by significant infrastructure updates and demand for Windows 11 upgrades in the enterprise sector.

Valuation

As a traditional hardware company, Dell's forward P/E ratio is around 15x, below the sector average of 23x. The stock has been stable since June 2024, with no significant fluctuations. Overall, the valuation is relatively low. Thanks to the AI boom and signs of successfully adapting to AI trends, Dell's stock has potential for appreciation.

Reviewed byTony

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