Dell's AI Bet: Genius or Gamble? HP's Layoffs: A Sign of the Times?
A Tale of Two Titans: Dell's AI Ascent vs. HP's Cost Cuts
The tech world is rarely subtle. This week's earnings reports from Dell and HP painted a stark picture: one company riding the AI wave, the other struggling to stay afloat in its wake. Dell's stock jumped in after-hours trading, fueled by a bullish forecast driven by AI server demand. Meanwhile, HP's stock took a nosedive, dragged down by layoff announcements and a weak outlook.
Dell's Q3 earnings were a mixed bag, admittedly. While earnings per share beat expectations at $2.59 (versus the $2.47 consensus), revenue came in slightly under at $27.01 billion (analysts wanted $27.13 billion). But the real story lies in the forecast. Dell is projecting Q4 revenue of approximately $31.5 billion, blowing past the Street’s $27.59 billion target. And earnings per share around $3.50, again, ahead of the $3.21 forecast. The key? AI.
Dell has upped its AI server revenue forecast to $25 billion (from $20 billion). Their full-year revenue target is now $111.7 billion, a significant jump from the previous $107 billion. It's not just talk; the numbers back it up. Server and networking sales within Dell's Infrastructure Solutions Group jumped 37% year-over-year, hitting $10.1 billion, with $5.6 billion coming directly from AI servers. That's more than half the server revenue tied directly to AI.
Dell's deal to ship Nvidia GB300-based systems to Iren Ltd., who will then rent capacity to Microsoft, shows the level of integration they have achieved.
HP, on the other hand, is singing a different tune. While Q4 earnings per share beat expectations at 93 cents, and revenue edged past estimates at $14.64 billion, the future looks grim. They're planning to lay off between 4,000 and 6,000 people over the next two years – up to 10% of their workforce. Fiscal year 2026 earnings are projected to be between $2.90 and $3.20 per share, trailing the analyst’s target of $3.33. No revenue guidance was issued.
The company expects at least $1 billion in annualized gross run rate savings from these layoffs by the end of fiscal 2028. But the charges related to the layoffs will be approximately $650 million, with $250 million expected in fiscal 2026. So, they have to spend money to save money, which doesn't sound like a winning strategy.
The Devil's in the Details (and the Windows Update)
Now, let's dig a little deeper. Dell's success isn't solely about AI. Their Client Solutions Group (PCs and laptops) revenue was up 3% year-over-year, hitting $12.48 billion, but still trailing the Street’s forecast of $12.65 billion. The end of support for Windows 10 last month was expected to boost PC sales, but it seems the effect wasn't as dramatic as some predicted. Why? That's the question.
HP's Personal Systems unit revenue, on the other hand, did beat expectations, coming in at $10.35 billion (analysts wanted $10.15 billion). But their printer revenue was down 4% year-over-year, landing just below the Street’s forecast.
And this is the part of the report that I find genuinely puzzling: HP claims to be adopting more AI automation to improve efficiency. But if that's the case, why the layoffs? Are they automating jobs away faster than they can reskill employees? Or is this a sign that their AI initiatives aren't paying off as quickly as they hoped?
The surge in memory chip costs is also impacting HP's PC business, with memory costs now accounting for 15% to 18% of a typical PC's cost. While HP is trying to counter these costs, investors seem unconvinced. The slow revenue growth and disappointing forecasts are raising concerns about HP's ability to adapt to the changing market.
The market has spoken, and it's backing Dell. Wall Street reacted positively to Dell's report, while investors were concerned about HP's glum forecast and the planned layoffs. Dell's stock rises on AI server demand, but HP slides after announcing layoffs and weak guidance - SiliconANGLE. HP's stock is down 27% year-to-date, while Dell's is up 7%. Neither is keeping pace with the S&P 500's 15% gain, but the trend is clear.
Dell is winning in AI because of its ability to engineer bespoke high-performance solutions, rapidly deploy large, complex clusters, and provide global support. Their customer base, primarily large enterprises, government agencies, and "neocloud" providers like CoreWeave Inc., gives them a stable foundation.
The AI Hype Is Real, But So Are the Risks
Dell's success hinges on the continued growth of the AI market. But what happens if the AI bubble bursts? Will Dell be able to pivot quickly enough? And is HP's focus on cost-cutting a sign of long-term decline, or a necessary step to ensure future profitability?
The contrasting fortunes of Dell and HP highlight the transformative power of AI. Dell is betting big on AI, and so far, it's paying off. HP, on the other hand, is facing a more uncertain future. The company must adapt to the changing landscape or risk being left behind.
Dell: Riding High on the Nvidia Wave
Dell is essentially surfing the Nvidia wave. The question is, what happens when the wave crashes?