Dell braces for softer Q4 revenue amid PC demand slump and AI-driven growth

Dell Technologies is forecasting lower-than-expected revenue for its fourth quarter, highlighting the challenges posed by weakening personal computer (PC) demand and rising costs in AI infrastructure. The company projects revenue in the range of $24 billion to $25 billion, falling below Wall Street’s consensus estimate of $25.57 billion, according to LSEG data. This announcement sent Dell’s stock tumbling by over 10% in extended trading.

Third-quarter results underscore mixed performance

For the fiscal third quarter of 2025, Dell Technologies reported revenue of $24.4 billion, marking a 10% increase year-on-year but missing market estimates of $24.67 billion. While the company’s Infrastructure Solutions Group (ISG), which includes AI-focused servers, demonstrated robust growth, its Client Solutions Group (CSG)—comprising the PC division—continues to face headwinds.

ISG revenue surged 34% year-on-year to $11.37 billion, driven by a 58% increase in server and networking revenue to $7.4 billion. AI server orders reached a record $3.6 billion in Q3, with demand growth spanning various customer types. The company also reported a 50% increase in its AI server order pipeline, underscoring strong market interest in high-performance computing solutions.

Conversely, the CSG division generated $12.13 billion in revenue, a 1% decline from the previous year. While commercial client revenue rose by 3% to $10.1 billion, consumer PC revenue dropped sharply by 18% to $2 billion. Dell executives noted in the earnings call that enterprise customers are curtailing IT budgets, while consumer spending remains dampened by economic uncertainty.

Earnings showcase cost pressures and operational resilience

Dell posted operating income of $1.7 billion in the third quarter, reflecting a 12% year-on-year increase. Non-GAAP operating income rose to $2.2 billion, driven by strategic cost management. The company’s diluted earnings per share climbed 16% to $1.58, while non-GAAP diluted EPS reached $2.15, up 14%.

Despite these earnings gains, rising expenses for developing and delivering AI-optimized servers have pressured Dell’s margins. The company has previously cautioned that competitive pricing and higher production costs in the AI segment could impact its profitability.

Broader market signals caution

The struggles in Dell’s PC division mirror broader industry challenges. HP, one of Dell’s primary competitors, issued a weak profit forecast for its fiscal first quarter, citing similar demand issues. Best Buy also adjusted its annual outlook downward, emphasizing a slowdown in consumer electronics spending.

Gadjo Sevilla, a senior analyst for AI and technology at Emarketer, noted that the PC market is undergoing a transformation. He attributed the current slump to a shift toward AI-integrated devices, a segment expected to stabilize in 2025. This evolution is leading to heightened competition and a transition phase that has left many consumers hesitant to invest in traditional PCs.

Dell’s strategic AI focus

Dell’s leadership in AI server technology remains a bright spot in its portfolio. The company is positioning itself as a key player in meeting the growing demand for AI infrastructure, especially in handling large-scale workloads. As Chief Operating Officer Jeff Clarke highlighted, interest in Dell’s AI solutions is at an all-time high, with record server orders indicating continued momentum.

However, balancing this growth with profitability will be challenging as the company navigates rising production costs and market competition. While Dell’s AI segment offers long-term growth potential, its near-term revenue outlook remains clouded by sluggish PC sales and macroeconomic pressures.

Financial resilience and outlook

Dell ended Q3 with $6.6 billion in cash and investments, reflecting strong operational cash flow of $1.6 billion. The company’s combined ISG and CSG revenue reached $23.5 billion for the quarter, up 13% year-on-year. However, free cash flow dropped 37% to $914 million, as rising capital expenditures and higher financing receivables weighed on liquidity.

Looking ahead, Dell’s ability to harness growth in AI infrastructure while addressing PC market challenges will determine its trajectory. While Q4 revenue may underperform expectations, the company’s strategic pivot toward AI positions it to capture opportunities in an evolving technology landscape.