What Happened?

Shares of computer hardware and IT solutions company Dell (NYSE: DELL) fell 2.3% in the afternoon session after investors continued to react negatively to the company's third-quarter earnings guidance, which fell short of expectations. 

The decline extends a drop from the previous trading day, which occurred despite the company reporting quarterly results that surpassed Wall Street's estimates and raising its full-year outlook. Dell's strong performance was reportedly driven by significant growth in its Artificial Intelligence (AI) server business. However, the weaker-than-anticipated forecast for third-quarter earnings per share appears to be the primary concern for investors, overshadowing the otherwise positive report.

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What Is The Market Telling Us

Dell’s shares are quite volatile and have had 19 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 4 days ago when the stock dropped 8.8% on the news that 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. Adding to the concerns, the company's storage revenue declined by 3%.

Dell is up 2.8% since the beginning of the year, but at $119.78 per share, it is still trading 16.9% 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 $1,749.

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