Stock of the Day: Dell tumbles 7% after earnings as investors scrutinize AI profit margins
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- Dell Technologies stock fell 7% on mixed earnings and profit margin concerns.
- Investors are worried about Dell's lower margins from its servers, which include costly AI GPUs from Nvidia.
- Investor focus is starting to shift from revenue growth to profit margins, impacting AI stocks.
The move: Dell Technologies tumbled 7% on Friday to $100.54. The stock is down about 45% from its record high reached in May last year.
The chart:
Why: Dell reported mixed earnings after the market close on Thursday.
While the company raised its dividend, increased its stock buyback program by $10 billion, and offered solid guidance for its upcoming fiscal year, that wasn't enough to satiate investors.
Investors are hung up on Dell's gross profit margin guidance, which is set to move lower by one percentage point, mainly due to the high cost of the Nvidia Blackwell GPUs that are incorporated into its AI servers.
During the company's earnings call, Wall Street analysts hammered Dell's management team with questions about its profit margins, and Dell responded that they have opportunities to pair their lower-margin Blackwell servers with high-margin offerings like storage.
Also top of mind for Dell investors are tariffs from the Trump administration, which would negatively impact the company.
What it means: As the AI boom cycle matures, investors are shifting their focus away from top-line revenue growth and toward bottom-line profits.
This was the case for Nvidia on Thursday, which sold off 8% even after its earnings report showed impressive year-over-year revenue growth of 78%. Instead, investors homed in on the company's decline in gross profit margins caused by its ramp in the production of the next-gen Blackwell GPU.
For Dell, solid revenue guidance and a higher-than-expected product backlog of $9 billion for its AI servers weren't enough to outweigh investor concerns about falling profit margins.