AI data center demand boosts Dell and HPE server sales

In short: Spending on AI data centers is lifting sales for older server makers like Dell and Hewlett Packard Enterprise.

What's going on

Dell said demand is rising for the servers it sells to AI data centers, which are large buildings filled with computers that run AI (like a warehouse full of very fast machines). After its latest earnings report, Dell shares jumped, and the stock has risen sharply.

Dell reported that first-quarter revenue from “AI infrastructure” rose 757% from a year earlier to $16 billion. The company also said revenue from standard servers, not just AI-focused ones, almost doubled in the quarter. Even the part of Dell that includes its PC business grew by nearly a fifth.

A similar pattern showed up at Hewlett Packard Enterprise, often called HPE. HPE reported strong results in its server division, and its shares rose by more than a quarter the next day, according to the Financial Times. These are brands many people associate with the 1990s, but investors are treating them more like fast-growing companies again.

What to watch

This growth depends on a larger chain of suppliers. Server makers rely on parts like memory chips, and Dell pointed to higher prices for DRAM and NAND (types of computer memory, like short-term and long-term storage inside a device). Dell said its gross margin, which is the slice of sales left after direct costs, fell to 18%, its lowest since 2018. Investors seem focused on rising revenue for now, but profit pressure and parts shortages could become a bigger issue if costs keep climbing.

Source: Financial Times