What Happened?
Shares of computer hardware and IT solutions company Dell (NYSE: DELL) fell 8.8% in the morning session after the company's weaker-than-expected profit forecast and concerns over shrinking margins overshadowed strong quarterly results driven by AI server demand.
Although Dell reported better-than-expected second-quarter revenue of $29.78 billion and raised its full-year outlook, investors focused on the downsides. The company's adjusted gross margin rate reportedly fell, as it prioritized fulfilling a surge in AI server orders over profitability. High costs for components to build AI servers and competitive pricing squeezed profits. Furthermore, Dell's third-quarter earnings guidance came in below analyst expectations.
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What Is The Market Telling Us
Dell’s shares are quite volatile and have had 18 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful but not something that would fundamentally change its perception of the business.
The previous big move we wrote about was 9 days ago when the stock dropped 5.7% on the news that the major indices continued to pull back, with technology stocks accounting for most of the market's largest decliners. A key reason for this trend is that much of the recent market gains were concentrated in the "AI trade," which includes these large technology and semiconductor companies. So this could also mean that some investors are locking in some gains ahead of more definitive feedback from the Fed.
Despite the downturn, some analysts viewed this as an opportunity to own some of the "Core AI winners." Dan Ives of Wedbush Securities commented, "In our view, the tech bull cycle will be well intact for at least another 2-3 years, given the trillions being spent on AI infrastructure/software/chips/power/apps looking ahead. This remains our tech playbook and investor roadmap." Additionally, mixed earnings reports from retailers, such as Target, have added to the market's weakness. Investors are closely monitoring these reports for insights into the broader economic health and the potential impact of new tariffs on inflation.
Dell is up 3.9% since the beginning of the year, but at $121.12 per share, it is still trading 16% below its 52-week high of $144.21 from November 2024. Investors who bought $1,000 worth of Dell’s shares 5 years ago would now be looking at an investment worth $1,833.
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