Dell surpasses expectations with an 80% increase in server sales, fueled by the AI revolution.

• Nvidia-based AI-oriented servers have made Dell a top vendor in this field.
• The demand for next-generation AI has surged due to the investments of a few businesses and cloud providers worth billions.
• In the third quarter, Dell reported a $3.1 billion increase in AI server sales compared to the May quarter's $1.7 billion.

Wall Street expectations were surpassed by the reported quarterly results on Thursday, which were driven by an 80% increase in server sales. The stock subsequently rose more than 5% in extended trading.

The company's performance in the fiscal second quarter exceeded LSEG consensus estimates.

• Revenue: $25.06 billion vs. $24.53 billion expected
• EPS: $1.89 adjusted, vs. $1.71 expected

In the year-ago period, net income was $455 million, or 63 cents per share, while revenue was $22.93 billion. This year, net income climbed 85% to $841 million, or $1.17 per share, and revenue increased about 9%.

Dell usually discloses its revenue forecast to investors during its analyst call. This year, the company predicted revenue ranging from $93.5 billion to $97.5 billion for the current fiscal year, which is higher than the previous year's revenue of $88.4 billion.

Dell has become a leading supplier of servers capable of handling artificial intelligence workloads, particularly those utilizing chips, as demand surges from cloud providers. In early 2021, CEO Jensen Huang emphasized the importance of contacting Dell founder Michael Dell to place orders for systems incorporating the company's new chips.

Despite a 48% increase in Dell shares this year, they have decreased by 34% since the company's last report.

The Infrastructure Solutions Group, responsible for creating servers and systems for data centers, is the fastest-growing unit of the company. Despite StreetAccount predictions of $10.44 billion, ISG sales increased by 38% to $11.65 billion.

Dell's report showcased the standout performance of Servers and Networking revenue, which encompasses both AI-based servers utilizing Nvidia and AMD GPUs, as well as conventional servers for legacy applications. This revenue stream falls under the umbrella of ISG.

Dell reported $7.76 billion in sales, up 80% annually, and exceeded StreetAccount expectations of $6.37 billion. The company attributed $3.1 billion of that total to AI server sales, which increased from $1.7 billion in the May quarter.

Dell's operating chief Jeff Clarke stated that the increase in revenue is due to the continuous rise in server demand, with a backlog of $3.8 billion in AI server orders that have not been fulfilled yet. Additionally, there is a multibillion-dollar pipeline of AI server deals from enterprises and cloud providers that have not been finalized.

The sales of Dell's storage business, which is part of ISG, decreased by 5% to reach $4 billion.

Dell's Client Solutions Group, which concentrates on PCs and laptops, experienced a 4% decline in annual revenue to $12.41 billion. The consumer sales sector saw a 22% drop to $1.86 billion, while the enterprise PC business remained stagnant with $10.55 billion in sales.

Dell disclosed that it invested $1 billion in share repurchases and dividends during the quarter.