Dell Q4 Earnings Preview: AI Growth, PC Recovery, and xAI Deal Under the Microscope

Dell Technologies is set to report its fiscal fourth-quarter earnings after the market closes today, with investors closely watching how AI-driven growth offsets broader macro challenges. Analysts expect earnings per share of $2.52 dollars on revenue of $24.57 billion dollars, reflecting 14.5 percent and 10.1 percent year-over-year growth, respectively. However, investor sentiment remains mixed, as recent AI server demand trends and weakness in the PC market raise questions about Dell’s near-term trajectory.

Key drivers include AI infrastructure and PC demand. AI servers remain the most significant focus for Dell’s earnings report, particularly after its $5 billion dollar AI server deal with Elon Musk’s xAI. However, this deal comes with a critical margin caveat, as Bloomberg reports that the gross margin for the business is only about 5 percent, reflecting how hardware makers like Dell are struggling to capitalize on the AI boom profitably.

Demand for H200 AI servers remains strong, but customers are reportedly holding off on B200 and GB200 models in favor of B300 and GB300 configurations, which won’t be available until the second half of 2025. This could result in an uneven revenue ramp for AI infrastructure spending, something investors will be closely monitoring.

Dell's partnership with Nvidia and AMD further strengthens its AI positioning. Dell and Nvidia recently announced a collaboration to enhance AI efficiency using the Run:ai platform, reinforcing its role as a key supplier of AI server racks. Meanwhile, Dell and AMD are launching new commercial PCs powered by Ryzen PRO processors, with the first models expected to hit the market in spring 2025.

Beyond AI, PC demand remains a major factor. Dell is benefiting from a gradual PC market recovery, but the expected Windows 10 end-of-life refresh cycle may not be as strong as initially projected. Analysts believe AI-powered PCs will be a bigger long-term catalyst, but for now, PC demand remains sluggish.

Dell’s third-quarter earnings results were mixed, with revenue of $24.4 billion dollars, slightly below the $24.6 billion dollar consensus estimate, but adjusted earnings per share of $2.15 dollars, beating expectations of 2.06 dollars.

AI demand was a major theme last quarter, with AI server orders reaching $3.6 billion dollars, up 13 percent quarter-over-quarter, and backlog growing 18 percent to $4.5 billion dollars. However, AI server revenue declined 6 percent sequentially, and management guided for a further modest decline in the fourth quarter, which contributed to the post-earnings selloff.

Dell’s Infrastructure Solutions Group, which includes AI servers, reported $11.4 billion dollars in revenue, up 34 percent year-over-year. Servers and networking revenue grew 58 percent to $7.4 billion dollars, reinforcing Dell’s AI-driven growth, but gross margins in AI remain tight.

The Client Solutions Group, which includes PCs, posted $12.1 billion dollars in revenue, down 1 percent year-over-year, missing the $12.42 billion dollar estimate. Commercial revenue rose 3 percent to $10.1 billion dollars, but consumer revenue declined 18 percent to $1.99 billion dollars, reflecting weak consumer demand for traditional PCs.

Dell’s storage business continues to lag, despite 4.2 percent year-over-year growth to $4 billion dollars, slightly above estimates. Some analysts believe 60TB SSD qualifications could be a future catalyst, but visibility remains uncertain.

Following the third-quarter results, Dell shares dropped over 12 percent in pre-market trading, as near-term AI revenue volatility and weak PC sales overshadowed its long-term AI opportunities.

Analysts have mixed expectations heading into the fourth quarter, with some pointing to a strong long-term AI opportunity, while others remain cautious on near-term earnings volatility.

Mizuho reiterated an outperform rating but lowered its price target to $150 dollars from $155 dollars, citing strong AI positioning but uneven PC demand. UBS sees Dell as a top hardware pick for 2025, expecting at least 10 percent Infrastructure Solutions Group revenue growth and a 5 percent PC recovery, but notes an uneven AI revenue backdrop and modest PC growth near-term. UBS cut its fiscal year 2025 earnings per share forecast to $7.80 dollars from $7.88 dollars.

Loop Capital maintains a buy rating and a $185 dollar price target, stating that weakness in the first quarter should shift to catalysts in the second half of 2025. Morgan Stanley lowered its price target to $128 dollars from $154 dollars, citing supply chain bottlenecks for AI servers but remains overweight on the stock for a long-term AI recovery. Fubon initiated coverage with a buy rating and a $140 dollar price target, believing Dell is well-positioned for AI infrastructure growth.

Dell’s valuation remains attractive relative to its sector. The stock currently trades at a forward price-to-earnings ratio of 14.5, a 39 percent discount to the sector median of 23.87. Additionally, its forward price-to-sales ratio of 0.83 is significantly below the sector’s 3.11, suggesting potential upside as AI-driven revenue ramps up.

Over the next 12 months, analysts expect Dell to benefit from AI inference computing, growing its AI sales through deals with AMD and xAI. If Dell’s valuation moves toward the sector median, shares could see an upside of approximately 65 percent.

As Dell reports earnings tonight, investors should focus on AI server growth and backlog trends, particularly how AI infrastructure orders are scaling. Gross margins for AI servers will also be a key focus, especially given the low-margin nature of the xAI deal.

The PC market recovery will be another area to watch, including updates on the Windows 10 refresh cycle and AI-powered PCs. Forward guidance for fiscal year 2026 will be critical, as supply chain challenges could impact near-term growth.

While Dell remains a strong long-term AI play, short-term volatility in AI revenue recognition and PC demand will be key themes driving the stock’s reaction after earnings.