Dell’s revenue forecast signals AI boost will take longer to materialize

Dell Technologies, a company known for manufacturing PCs and servers, has reiterated its long-term revenue growth expectations despite disappointing some investors. The company expects its revenue to grow at a compounded annual rate of 3% to 4%, which fell short of the expectations of AI enthusiasts who were hoping for a bigger sales jump in this area. As a result, Dell’s shares dropped by 4%.

Dell also projected long-term adjusted earnings per share growth of 8% or more and announced plans to buy back $5 billion in stock, in addition to a similarly-sized repurchase plan launched in 2021. These measures aim to further support its growth plans and return value to shareholders.

The company’s revenue outlook indicates that the anticipated benefits from generative AI might take longer to materialize. Despite the surge in demand for AI technologies, Dell seemingly needs more time to capitalize on this trend. Evercore ISI analysts noted that the projected revenue compound annual growth rate (CAGR) seems conservative, considering the recent tailwinds AI has experienced.

AI has become a significant area of growth for tech companies like Dell. After facing several quarters of sales decline due to lower digital spending, the demand for AI-related products has emerged as a bright spot for the company. The pandemic-induced slump in the PC market, which is Dell’s main revenue generator, has also been a challenge for the company.

To strengthen its commitment to shareholders, Dell plans to raise its quarterly dividend by 10% or more annually through fiscal 2028. The company aims to return over 80% of its adjusted free cash flow to shareholders through a combination of share repurchases and dividends.

Despite its recent challenges, Dell’s shares have seen considerable growth, rising by 65% so far this year. The company’s shares had dropped nearly 30% in 2022 but have since made a significant recovery.

To cut costs and navigate the changing market landscape, Dell has taken measures such as implementing layoffs that impacted 6,000 jobs and implementing travel restrictions.

In conclusion, Dell Technologies remains optimistic about its long-term growth prospects. While investors may have had higher expectations for AI-driven revenue growth, the company’s continued commitment to shareholder value through measures like stock buybacks and dividend increases demonstrates its confidence in its future performance. As Dell navigates the evolving technology landscape, it is positioned to capitalize on the increasing demand for AI solutions.