Dell Struggles To Protect Margins As Supply Chain Costs Mount

Core Viewpoint - Dell Technologies reported a significant increase in second-quarter revenue driven by AI server demand, but provided profit guidance that disappointed investors, leading to a decline in share price [1][11]. Financial Performance - The company achieved revenue of $29.78 billion, reflecting a 19% year-over-year increase, primarily due to strong demand for AI servers [1]. - Adjusted earnings per share (EPS) were $2.32, slightly exceeding Wall Street's consensus of $2.31 [1]. - For fiscal year 2026, Dell raised its revenue outlook to a maximum of $109 billion, up from a previous consensus of $104.59 billion, and adjusted its EPS forecast to a range of $9.40 to $9.55 from $9.38 [2]. Future Guidance - For the third quarter, Dell guided earnings of $2.45 per share, which is below analyst expectations of $2.55, citing margin pressures from supply chain costs and competitive pricing [3]. - Third-quarter revenue is projected to be between $26.5 billion and $27.5 billion, surpassing the $26.05 billion estimate [3]. Analyst Insights - JP Morgan analyst Samik Chatterjee maintained an Overweight rating with a price target of $145, highlighting stronger-than-expected AI server revenue of $8.2 billion compared to his estimate of $7.2 billion [4]. - Dell secured $5.6 billion in incremental AI orders, which contributed to a $4 billion increase in its fiscal 2026 revenue forecast midpoint [5]. - Goldman Sachs reiterated a Buy rating and raised its 12-month price target to $150 from $140, citing Dell's leadership in AI infrastructure and ongoing PC refresh opportunities [9]. Margin and Operational Outlook - Management anticipates margin recovery in the second half of the fiscal year, projecting average margins of about 10%, up from 7.4% in the first half, with profits expected to improve by approximately 35% [7]. - Analysts noted that while AI server demand is strong, there are pressures on margins from traditional servers and storage, which may limit flow-through to EBIT [10].