Dell Technologies (NYSE: DELL) announced Thursday that its adjusted gross margin rate will decline in fiscal year 2026, citing rising costs to produce artificial intelligence (AI) servers in a highly competitive market. The company also pointed to weaker demand in its personal computer (PC) business as a contributing factor.
Following the news, Dell shares slipped about 2% in extended trading, even as the company unveiled a $10 billion increase to its share buyback program.
Dell has become a significant player in the booming AI server market, using powerful Nvidia (NASDAQ: NVDA) chips to build machines capable of supporting the intense computational needs of training large language models—like those powering chatbots such as ChatGPT. This has sparked strong demand for Dell’s AI servers, alongside competitors like Super Micro Computer (NASDAQ: SMCI).
The company now forecasts $15 billion in annual revenue from AI server shipments, a significant 53% increase from the $9.8 billion generated in the fiscal year ended January 31. However, the costly production of these AI-driven servers is putting pressure on profitability. Dell expects its adjusted gross margin rate to fall by about 100 basis points for the year.
The company reported a booming AI server backlog, reaching approximately $9 billion as of February 27. This growth was bolstered by a new agreement with Elon Musk’s xAI startup.
For fiscal 2026, Dell Technologies (NYSE: DELL) forecasts an annual adjusted profit of $9.30 per share, topping analysts’ expectations of $9.23, according to LSEG data. Its revenue forecast, with a midpoint of $103 billion, matched Wall Street estimates.
TARIFFS COULD TRIGGER PRICE INCREASE
A potential U.S. trade tariff on Chinese products could further complicate Dell’s outlook. The proposed measures threaten to raise costs across industries, including technology, automotive manufacturing, and services.
Dell is actively reviewing the tariff executive orders to understand their impact on its operations and customers.
“Whatever tariff we cannot mitigate, we view that as an input cost. As our input costs go up, it may require us to adjust prices,” Chief Operating Officer Jeff Clarke said.
So far, the company noted that the tariff announcements have not prompted any pricing changes.
PC MARKET FACES HEADWINDS
Dell’s traditional PC business is also under pressure. Research firm International Data Corporation (IDC) downgraded its traditional PC forecast for 2025 and beyond on Thursday, citing the U.S.-China tariffs and softening market sentiment.
In the fourth quarter, Dell’s client solutions group, which includes its PC offerings, posted a modest 1% revenue uptick to $11.88 billion. Meanwhile, its infrastructure solutions group, including servers, storage, and software, grew 22% to $11.35 billion.
FOURTH-QUARTER RESULTS MIXED
In its latest quarterly results, Dell Technologies (NYSE: DELL) reported revenue of $23.93 billion for the period ended January 31, falling short of analysts’ expectations of $24.56 billion. However, its adjusted earnings of $2.68 per share beat forecasts of $2.53.
