Weak guidance sent Dell Technologies Inc.‘s shares into a tailspin today, as the stock fell more than 10% in extended trading.

The company is forecasting lower server sales, and blamed the shortfall on enterprise customers that are waiting to snap up new systems powered by Nvidia Corp.’s next-generation Blackwell graphics processing unit chips and therefore shifting to later orders, some of which won’t be reflected in the current quarter.

The personal computer and server giant reported third-quarter earnings that beat analysts’ expectations, but its revenue for the period came up light. The company said it delivered earnings before certain costs such as stock compensation of $2.15 per share, easily surpassing the $2.06 analyst forecast, but its revenue of $24.4 billion, up 10% from a year earlier, came in below the Street’s target of $24.67 billion.

Net income for the quarter rose 12%, to $1.12 billion, up from just over $1 billion in the year-ago period.

Dell Vice Chairman and Chief Operating Officer Jeff Clarke (pictured) told analysts on a conference call that growth of artificial intelligence server sales is likely to swing quite wildly from quarter to quarter due to the pace of innovation in that industry. “This business will not be linear, especially as customers navigate the underlying silicon roadmap that is changing,” he said.

Dell has become one of the biggest beneficiaries of AI-related chip sales, selling server systems packed with graphics processing units from Nvidia and other chipmakers. It competes with other server makers, such as Hewlett Packard Enterprise Co. and Super Micro Computer Inc., as well as Asian firms such as Lenovo Group Ltd., which all sell similar systems.

However, Dell has been somewhat favored by Nvidia Chief Executive Jensen Huang, who called out Dell founder and CEO Michael Dell as the man to talk to for anyone interested in buying systems loaded with its upcoming Blackwell GPUs, or its older processors.

The company has looked to build on its special relationship with Nvidia through its AI Factory initiative, which can help organizations adopt and scale up AI across their operations by deploying an integrated set of infrastructure, software and services for running large language models.

Adam Glick, senior director of AI portfolio marketing at Dell, discussed that initiative in detail during an interview on theCUBE, SiliconANGLE Media’s livestreaming studio, earlier this month, explaining that it’s all about helping organizations to build something that’s “massively scalable.”

Demand for Nvidia’s GPUs remains sky-high, with cloud infrastructure providers and enterprises such as Meta Platforms Inc. still racing to buy up as many as they can get their hands on. They often buy complete systems with tens of thousands of GPUs, and Dell sells servers with numerous different configurations for customers to choose from.

That explains why Dell’s stock had soared more than 86% prior to today, as investors took note of its growing importance in the AI industry.

However, those customers are now beginning to slow down their pace of new server purchases, in anticipation of Nvidia’s next-generation Blackwell chips, which won’t go on sale until early next year. They were originally slated to roll out in the third quarter, only to be delayed by a design fault.

Clarke told analysts that the company was seeing some of its AI server demand shift to Blackwell, but Nvidia has yet to start shipping them to customers in large quantities.

“We saw in the third quarter a pretty rapid shift of the orders towards our Blackwell designs,” he said, pointing to a pipeline of future AI server orders that now stands at $4.5 billion. “We’re only in the very early innings of enterprises learning how to deploy AI,” he added.

Dell’s long-term prospects therefore look strong, but in the short term, investors may have to endure some pain. For the current quarter, Dell is looking for revenue of between $24 billion and $25 billion, below the Street’s target of $25.57 billion. The shortfall will impact the company’s profitability too. In terms of earnings, Dell said it’s looking at $2.50 per share at the midpoint of its guidance range, below the Street’s consensus estimate of $2.65 per share.

Dell reports AI server sales within its Infrastructure Solutions Group, which also includes sales of traditional servers, storage and networking systems, and revenue there jumped 34% to $11.45 billion in the third quarter. Within that segment, servers and networking delivered $7.4 billion in sales, up 58% from a year ago, with AI servers accounting for $2.9 billion.

The company also saw increased demand for its traditional servers, which are powered by central processing units from companies such as Intel Corp. and Advanced Micro Devices Inc. Sales of those systems increased by double-digits, the company noted.

Storage systems generated another $4 billion in sales, up 4% from the same period last year.

Dell’s other main business segment is the Client Solutions Group, which accounts for sales of PCs and laptops. For now, it remains the company’s biggest business, even though sales declined 1% from a year earlier, to $12.1 billion.

Dell said sales of commercial PCs, or those bought by companies for their employees, rose 3% to $10.1 billion, while consumer PC sales declined 18%, to just $2 billion.

“Dell had a good quarter, mainly because its data center revenue is now large enough that its growth can compensate for the stagnating Client Solutions Group,” said Holger Mueller of Constellation Research Inc. “Success in the coming quarter will depend on Dell’s ability to spark some AI PC demand. If it doesn’t, the next quarter may be the inflection point where data center revenue surpasses that of PCs.”

Photo: SiliconANGLE