Dell Technologies shares made a powerful surge in after-hours trading, rising more than 10% after publishing quarterly results that exceeded the market's boldest expectations. Adjusted earnings per share came in at $7.04 versus the analyst consensus forecast of $4.90 — a massive gap, indicating far more efficient operational performance than market participants had assumed.
A quarter that flipped expectations
The company's revenue grew 58% year-over-year, reaching $46.97 billion. However, the main intrigue centered on the stock's momentum: in the main session on Tuesday, shares closed down 6.98% at $424.20, creating fertile ground for a powerful rebound after the numbers were released. Already in after-hours trading, quotes jumped to $469.66.
It is worth noting that the decline before the report was quite predictable. Options expiring on Friday priced in an 11% swing, and the actual volatility (+10.59%) almost perfectly matched that forecast. Traders were bracing for a sharp reaction, and it did not take long to arrive.
AI backlog: a record $95 billion
The key growth driver was not just the results, but also the impressive order portfolio for artificial intelligence servers. AI server sales doubled over the year, reaching $16.4 billion, while the quarterly volume of new orders came in at $60.9 billion. The total backlog of unfilled orders now stands at a record $95 billion — for comparison, three months ago that figure was at $51.3 billion.
Demand continues to significantly outpace physical equipment shipments, pointing to a structural shortage of capacity for AI infrastructure. Company management has raised annual forecasts for the second consecutive quarter: revenue of around $192 billion and adjusted earnings of $25.50 per share are now expected, whereas previously these figures were $167 billion and $17.90, respectively.
AI server outlook and the third quarter
Particular attention is warranted for the revised AI server revenue forecast: the company now expects around $74 billion versus May expectations of $60 billion. For the third quarter, Dell is guiding for approximately $49 billion in revenue and adjusted earnings of $6.50 per share.
Despite the positive news, the market has not yet fully priced in these expectations. Current quotes at $469.66 are only 3% above Monday's close of $456.01, suggesting that most of the gain merely offset yesterday's decline. All the intrigue now shifts to the management conference call, where investors will be looking for answers on memory supply and the pace of converting the backlog into actual shipments.
My take: Dell is turning into one of the main beneficiaries of the AI boom. The current trajectory resembles Nvidia's path in 2023, when the market gradually came to grasp the scale of demand for AI infrastructure. However, it is worth remembering that with such aggressive growth, the margin profile of AI servers remains lower than traditional products, creating a risk of correction at the slightest slowdown in order momentum. Nevertheless, as long as the backlog grows at this pace, the fundamental story remains extremely compelling.