Dell Stock Set To Hit 1-Month Low After Q3 Revenue Miss, Sub-Par Guidance: Retail Stays Firmly Bullish

Dell said it expects multiple tailwinds going into next year, including more robust AI demand supported by its strong 5-quarter pipeline.

Dell Technologies, Inc. ($DELL) shares fell sharply in Wednesday’s premarket session after the computer and peripherals maker announced mixed results for the fiscal-year 2025 third quarter results but retailers aren’t ready to give up on the stock. 

Round Rock, Texas-based Dell reported third-quarter non-GAAP earnings per share (EPS) of $2.15, up from $1.88 earned a year-ago. The bottom-line result exceeded the consensus estimate of $2.06.

Revenue climbed 12% year-over-year (YoY) to $24.4 billion, slightly shy of the consensus estimate of $24.67 billion.

Among business segments, infrastructure solutions group (ISG) revenue rose 34% YoY to $11.4 billion or roughly 47% of the revenue. Within this segment, servers and networking revenue jumped a steeper 58% to $7.4 billion, fueled by strong demand for traditional and artificial intelligence servers.

Dell shipped $2.9 billion of AI servers in the third quarter, resulting in an AI server backlog of $4.5 billion.

The company said AI server orders were at a record $3.6 billion in the quarter, primarily driven by Tier 2 cloud service providers with continued growth in enterprise customers. 

Clients solutions group’s (CSG) revenue was down 1% at $12.1 billion, with a 3% increase in commercial client revenue more than offset by a 18% decline in consumer revenue.

Dell generated cash flow from operations of $1.6 billion in the third quarter and ended the three-month period with $16.6 billion in cash and investments. 

 Yvonne McGill, CFO of Dell said, "We continued to build on our AI leadership and momentum, delivering combined ISG and CSG revenue of $23.5 billion, up 13% year over year."

"Our continued focus on profitability resulted in EPS growth that outpaced revenue growth, and we again delivered strong cash performance."

On the earnings call, the company issued a cautious commentary regarding enterprise and large customers, which appear to be mindful of their spend in the near term. The company guided to fourth-quarter revenue to be between $24 billion and $25 billion, with ISG and CSG combined growing 13%.

Dell expects non-GAAP EPS of $2.50, plus or minus $0.10

This compares to the consensus of $25.43 billion and $2.61, respectively.

The company expects to full-year revenue to grow 9% at the midpoint and non-GAAP EPS to come in at $7.81, which trailed the average analysts’ estimate for 10% growth and $7.84, respectively.

"We expect multiple tailwinds going into next year, including more robust AI demand supported by our strong 5-quarter pipeline," said CFO McGill. "There's also an aging installed base in both PCs and traditional servers that are prime for a refresh," the executive said.

Morgan Stanley said Dell outperformed most key metrics that were on investors’ radar. The firm, however, predicted negative stock reaction as the stock is a "crowded consensus buy long," the third-quarter CSG missed and the guidance was cautious.

The firm said it would be buyers on any post-earnings weakness.

Reacting to the results, the stock was down a steep 11.55% at $125.37 as of 7:19 a.m. ET in premarket trading. If the premarket losses carry over to the regular session, the stock is on track to touch a one-month low. 

For the year, the stock has gained over 88% compared to the S&P 500’s 26% jump and the Nasdaq Composite’s nearly 28% rise.

Retail sentiment toward the stock, however, remained buoyant. On Stocktwits, users stayed ‘bullish’ (64/100), and the buoyant mood triggered. 'extremely high' levels of message volume.

A user felt the stock is cheap as its market cap is almost on level with revenue.

Another shrugged off the post-earnings weakness as a typical trend. While the stock could test the $115 level in the short term, it could do just fine in the long term, he said.