Dell Technologies Inc. (DELL) Stock: Plummets Almost 10% After Weak Q3 Earnings Guidance

TLDRS:

Dell shares fell 9.65% after Q3 guidance missed analyst expectations despite strong Q2 results. Q2 revenue rose 19% year-on-year, driven by AI server demand reaching $12.9 billion. Full-year revenue forecast increased to $107 billion, highlighting Dell’s AI infrastructure pivot. Workforce cuts and rising AI costs continue to challenge Dell’s profit margins in fiscal 2026.

Dell Technologies Inc. (DELL) experienced a dramatic decline of 9.65% in after-hours trading on Friday, following the release of its third-quarter earnings guidance, which fell short of Wall Street expectations.

While the company delivered strong Q2 results, investors reacted sharply to the forward-looking projections, underscoring the market’s focus on future performance over current achievements.

The US-based systems integrator reported an adjusted Q2 earnings per share (EPS) of $2.32 and revenue of $29.8 billion, both slightly above analysts’ estimates. However, Dell’s Q3 EPS guidance of $2.45 missed the projected $2.55 per share consensus, even though revenue guidance of $27 billion exceeded expectations. This mismatch between short-term outlook and market anticipation drove the notable drop in stock price.

Dell Technologies Inc. (DELL)

AI Servers Drive Revenue Growth

Dell’s Q2 revenue growth was largely fueled by its servers and networking division, particularly AI servers, which surged 69% year-on-year to $12.9 billion.

Over the past two quarters, the company shipped $10 billion in AI server equipment and projects $20 billion in fiscal 2026, reflecting a strategic shift from traditional PC sales toward enterprise-grade AI infrastructure.

“The forward guidance often drives stock reactions more than current performance,” said an industry analyst. “Even when a company beats revenue and EPS estimates, any shortfall in future projections can overshadow strong present results.”

The shift toward AI infrastructure represents a transformative pivot for Dell. Traditionally recognized for its consumer-focused hardware, the company is increasingly positioning itself as a critical provider in the AI supply chain.

Servers and Networking revenue now significantly outpaces the Client Solutions Group, which includes PCs and traditional devices, showing only 1% growth in the same period.

AI server sales alone accounted for $8.2 billion in Q2, with $5.6 billion in new orders. This robust demand demonstrates sustained momentum for enterprise computing solutions, reinforcing Dell’s reputation as a major player in AI deployment and infrastructure.

Q2FY26: Another robust quarter as we deliver breakthrough AI innovation and strong financial performance, with $29.8B in revenue and $1.8B in operating income.

Catch the earnings call replay & see the Q2 report📝: https://t.co/3ZPDSPU50Q pic.twitter.com/upCFAj6qnx

— Dell Technologies (@DellTech) August 28, 2025

Workforce Cuts and Cost Pressures

Cost pressures remain a challenge. Earlier in March 2025, Dell announced a 10% reduction in its workforce, bringing total headcount down to approximately 108,000.

These cuts, part of broader cost-control measures including limited hiring and role restructuring, aim to offset rising expenses associated with building and delivering AI servers in a competitive market. Analysts warn that the adjusted gross margin rate may face headwinds in fiscal 2026 due to these higher AI-related costs.

Despite these challenges, Dell maintains a strong commitment to diversity and inclusion in its workforce, indicating that operational efficiency is being balanced with corporate responsibility.

Full-Year Outlook Remains Strong

Dell’s full-year revenue forecast rose to $107 billion, with diluted EPS expected to reach $9.60, both surpassing consensus forecasts. This suggests that while short-term guidance disappointed investors, the company is confident in its long-term strategy, particularly the expansion of AI server capabilities.

The market reaction underscores a broader trend where quarterly forward guidance increasingly dominates investor sentiment, especially in technology companies undergoing rapid transitions toward AI and enterprise computing.

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