Dell AI Server Growth (with Scarlet Fu)

Dell raised AI server guidance 20% to $60B, with traditional servers and PCs also beating expectations. The company is passing through higher input costs to customers, maintaining margins. AI server demand is still in early stages with neoclouds and sovereigns placing multi-billion dollar deals.

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Woo Jin Ho 7.5

Dell AI Server Growth (with Scarlet Fu)

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AI server demand is in early stages with strong growth from neoclouds and sovereigns, and corporates adopting AI will drive traditional server demand with higher ASPs over next couple years, supporting tech sector growth.

Scarlet Fu

Dell shares are moving in the opposite direction (up) due to AI server story.
Woo Jin Ho

Dell raised AI server guidance by 20% from $50B to $60B for this year, evenly distributed. Total guidance raised by $25-27B, with $10B from AI servers and the rest from traditional servers and PCs doing better than expected.
Scarlet Fu

Questioning sustainability of $60B AI server opportunity.
Woo Jin Ho

We're only at the beginning phases of AI server adoption. Neoclouds and sovereigns are placing multi-billion dollar deals and will likely be at the front of the line for equipment.
Scarlet Fu

Dell as hardware maker faces higher input costs including memory chips - how is it managing margins?
Woo Jin Ho

Dell is not absorbing input costs as much as expected. Gross margins are actually going up. They are passing through input costs to customers on AI server side due to high-end demand. Traditional server costs up 200-300% in H1, PC costs up 20% YoY in H2.
Scarlet Fu

Is AI demand offsetting weakness in other parts of PC market or creating new revenue streams?
Woo Jin Ho

As corporates adopt AI over next couple years, we will see bigger demand in traditional servers with higher ASPs, benefiting Dell, HPE, and Lenovo. This is part of the re-rating story for the multiple.
Scarlet Fu

That tailwind hasn't been seen yet for HPE and Lenovo.
Woo Jin Ho

Lenovo has started to see a pickup, though it may be front-loaded due to component costs. The traditional server tailwind is an emerging story over next couple years.

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