Shares of Dell Technologies dropped nearly 10% on Friday, as soaring manufacturing costs for AI-optimized servers and mounting competition weighed heavily on the company’s otherwise strong demand outlook for artificial intelligence infrastructure.
If the decline continues, Dell could lose around $8 billion from its $91 billion market capitalization.
Despite the sell-off, AI server demand remains a key growth driver. Dell increased its annual shipment forecast to $20 billion, up from $15 billion, pointing to strong orders from major clients such as Elon Musk’s xAI and cloud provider CoreWeave.
Analysts at J.P. Morgan noted that Dell is prioritizing AI server deliveries over maintaining margins. Supply chain challenges and higher shipping costs added to the pressure, alongside competitive pricing strategies designed to secure large customer contracts.
The company’s adjusted gross margin fell to 18.7% in the second quarter, below last year’s level and under analysts’ estimates of 19.6%, according to LSEG data. Dell projects third-quarter profit per share of $2.45, slightly missing expectations of $2.55.
Revenue for the third quarter is expected to range between $26.5 billion and $27.5 billion, compared with forecasts of $26.05 billion. Meanwhile, Dell raised its full-year revenue forecast to between $105 billion and $109 billion, up from its previous outlook of $101 billion to $105 billion, driven by strong demand for AI-focused servers.
So far this year, Dell’s stock has gained 16.3%, outperforming Hewlett Packard Enterprise (HPE) and the broader S&P 500 index. HPE will report its quarterly earnings on Wednesday after markets close.
Currently, Dell trades at 13.2 times profit expectations, higher than HPE’s 10.8 but well below the S&P 500’s 22.3, even with its strong positioning in the fast-growing AI infrastructure market.
