Dell shares surge on AI server demand boosting results and forecasts

Shares of Dell Technologies rose 6 percent in premarket trading Friday after strong demand for its artificial intelligence servers pushed the company to raise its full-year earnings and revenue estimates.

Dell, which provides servers and related infrastructure for businesses, stepped up its AI push earlier this year by partnering with chip giant Nvidia. With Nvidia's technology stack, Dell is attracting mid-sized business customers to upgrade their servers with AI capabilities. Dell's earnings growth is entirely due to AI servers, with storage and PC revenues falling short of consensus.

80% to 90% of the company's server customers appear to be Tier 2 cloud service providers, and the new deal opportunity appears to be a competitive bid with Supermicro Computer Corp.

Revenue at Dell's Infrastructure Solutions unit, which includes server sales, rose 38 percent in the second quarter from a year earlier. Demand for artificial intelligence-optimized servers, including the flagship PowerEdge XE9680, grew 23 percent sequentially to $3.2 billion, the company said Thursday. Dell's AI program now appears to be at $11 billion to $13 billion, up from the first-quarter estimate of $8 billion to $10 billion. Dell's adjusted earnings per share of $1.89 and revenue of $25.03 billion both beat LSEG's estimates.

At least three brokerage firms raised their price targets for the stock following Dell's earnings report. the median price target for Dell stock is $155, according to LSEG, with 19 of 22 analysts giving it a “buy” or higher rating.