Dell Q3 Earnings Preview

Dell Inc. (NYSE: DELL) will report fiscal Q3 2025 results on Tuesday, November 26, 2024, after the market close. Here are the key numbers that we’re watching.

DELL – Consensus Expectations for Q3 2025, Past Earnings Surprises, Revisions, and CAGR

Source: Visible Alpha consensus (November 20, 2024)

Dell’s Fiscal Q3 2025 Preview

For fiscal Q3 2025, Dell guided to $24.0-25.0 billion in total revenue, in line with expectations of $24.7 billion, ahead of the release next week. The ISG segment revenue is projected to make up $11.3 billion, and to see its margin improve quarter over quarter. The company called out improvements in the storage business and operating expense scaling last quarter. The ISG consensus margin for Q3 is now expected to be 11.9%, but is down from the 12.6% expected at the end of last quarter.

Commentary on the company’s AI server backlog will be important for assessing the outlook. Issues around the AI backlog in Q1 led to disappointment in the stock, due to the lack of ISG operating profit growth generated by an additional $1.7 billion in AI server shipments year over year. However, in Q2, the company shipped $3.1 billion of AI servers and the AI server backlog remained at ~$3.8 billion. Training foundational models has been a large percentage of the pipeline and it will be interesting to see if that is still true. Will the company be ready to ship more AI servers in Q4 and how will this impact their outlook?

Revisions of DELL Estimates

Source: Visible Alpha consensus (November 20, 2024). Stock price data courtesy of FactSet. Dell’s current stock price is as of the market close on November 19, 2024.

The Longer-Term Outlook

Dell guided FY 2025 revenues to $95.5-98.5 billion, in line with the $97.6 billion expected by analysts ahead of next week’s Q3 release. In addition, the company highlighted that ISG will deliver 11-14% long-term margins. Currently, Visible Alpha consensus is projecting ISG’s operating profit margin to increase from 8% in Q1 this fiscal year to 11% by the end of fiscal year 2026. The margin expectation declined 130bps since last quarter, suggesting a more tempered view of the margin expansion.

Looking further out, analysts remain bullish on the demand for AI servers. Based on six sources, analysts expect to see AI server revenue generate $10.7 billion in FY 2025 and to expand in FY 2026 to $15.2 billion, up from $13.8 billion last quarter. ISG revenue is expected to grow to $51.8 billion in FY 2026, with nearly all of the year-over-year increase coming from the AI servers. ISG profitability is expected to exceed 11.5% operating profit margin this year and to decrease to 11.1% by FY 2026. How long will it take to return to the previous 13% levels?

According to Visible Alpha consensus, EPS is expected to grow nearly 20% from $7.85/share in FY 2025 to $9.42/share in FY 2026. Estimates range from $8.75/share to $10.50/share, putting the FY 2026 P/E consensus at 14x, and in the 13x-16x range.

DELL stock has traded down around 20% since last May’s earnings release, but is up 23% since the August earnings announcement. Will the ramp in AI servers continue? Will ISG’s profitability beat expectations and be a catalyst in Q4 2025 and FY 2026?

DELL Segment Details

Source: Visible Alpha consensus (November 20, 2024). Stock price data courtesy of FactSet. Dell’s current stock price is as of the market close on November 19, 2024.