Dell, HP Shares Plunge After AI Fails To Ignite “PC Refresh Cycle”

Shares of Dell Technologies and HP tumbled in premarket trading on Wednesday after both companies reported quarterly financial results, underscoring a lackluster personal computer upgrade cycle. Meanwhile, the highly anticipated upgrade supercycle for AI-enabled Apple iPhones has also been underwhelming.

Dell shares fell as much as 12% in premarket trading after the computer hardware company reported revenue that missed the Bloomberg Consensus. 

“The PC refresh cycle is pushing into next year,” Dell CFO Yvonne McGill told analysts on a Tuesday call following the results.

Here’s a snapshot of Dell’s third-quarter earnings (courtesy of Bloomberg):

• Infrastructure Solutions Group net revenue $11.37 billion, +34% y/y, estimate $11.34 billion (Bloomberg Consensus)

• Servers and Networking revenue $7.36 billion, +58% y/y, estimate $7.53 billion

• Storage revenue $4.00 billion, +4.2% y/y, estimate $3.83 billion

• Adjusted EPS $2.15 vs. $1.88 y/y, estimate $2.05

• Total net revenue $24.37 billion, +9.5% y/y, estimate $24.59 billion

• Client Solutions Group net revenue $12.13 billion, -1.2% y/y, estimate $12.42 billion

• Commercial revenue $10.14 billion, +3.1% y/y, estimate $10.5 billion

• Consumer revenue $1.99 billion, -18% y/y, estimate $2.02 billion

• Adjusted operating income $2.20 billion, +12% y/y, estimate $2.16 billion

Commentary from institutional desks on Dell’s earnings (courtesy of Bloomberg): 

Morgan Stanley analyst Erik Woodring (overweight, PT $154)

• Dell missed estimates on its Client Solutions Group (CSG) business and the management seems conservative with the 4Q forecast

• The post-earnings stock reaction seems “overdone”

Barclays analyst Tim Long (equal weight, PT to $115 from $106)

• Dell reported a slight miss in revenues and its forecast was a little light

• “AI server revenues were in​-​line, but guided slightly lower into the January quarter despite positive comments around the pipeline”

Citi analyst Asiya Merchant (buy, PT to $156 from $160)

• Dell’s forecast missed expectations on “lumpy AI revenues” and dependent on timing of customer acceptance

• Its CSG business underperformed given more muted PCs

More softness in the PC market was realized after HP’s outlook for the first quarter, more specifically, adjusted earnings per share that missed the Bloomberg Consensus.

In an interview, HP CEO Enrique Lores said that Microsoft’s new Windows software has not sparked a boom in PC sales from corporate clients. 

“Weaker-than-expected Personal Systems sales and profit were the biggest drag on HP’s fiscal 4Q results, and its below-consensus 1Q EPS guidance suggests little improvement in PC demand in the seasonally stronger December quarter,” Bloomberg Intelligence Woo Jin Ho wrote in a note. 

Here’s a snapshot of the fourth quarter:

• Adjusted EPS 93c vs. 90c y/y, estimate 93c

• Net revenue $14.06 billion, +1.7% y/y, estimate $14 billion

• Personal systems revenue $9.59 billion, +2.1% y/y, estimate $9.74 billion

• Printing revenue $4.45 billion, +0.8% y/y, estimate $4.25 billion

• Adjusted operating margin 8.5% vs. 9% y/y, estimate 8.66%

• Free cash flow $1.5 billion, -21% y/y, estimate $1.56 billion

• Repurchase of common stock $900 million

• Share repurchased 25.4 million

HP’s outlook for the first quarter failed to impress Wall Street analysts, many of whom had predicted a PC demand boom fueled by AI heading into the new year

• Sees adjusted EPS 70c to 76c, estimate 86c (Bloomberg Consensus)

More color on HP’s earnings report via Wall Street analysts:

JPMorgan analyst Samik Chatterjee (overweight, PT to $40 from $41)

• HP’s PC margin pressures make FY25 forecast “more contingent on volume cycle”

• While the “challenging near-term fundamentals for the PC market are already well understood,” the company is facing greater headwinds in relation to competitive pricing dynamics in the market

• “While there are limited details around implementation of additional tariffs, the company reiterated that it is in a much more favorable position relative to a few years ago after its focus on supply chain resiliency”

Evercore ISI analyst Amit Daryanani (outperform, PT $40)

• HP reported solid results considering PC market softness during the quarter

• There are some concerns surrounding a below seasonal 1Q EPS forecast and “the H2 skewed guide appears appropriate considering industry dynamics”

Morgan Stanley analyst Erik Woodring (equal-weight, PT $36)

• HP’s in-line FY25 forecast coupled with a very sub-seasonal 1Q EPS outlook “means 2025 will be more back-half loaded than ever before”

• “Similar to DELL, HPQ noted a delayed PC refresh, which creates 2H-weighted PC revenue ramp“

In premarket trading, Dell shares dropped 12%, while HP shares are down 8%

Separately, market tracker IDC reported that the AI-enabled Apple iPhone 16 upgrade supercycle was pretty much a dud. 

So much for AI driving consumer demand for new devices.