US, Chinese tech giants post underwhelming numbers as AI push backfires

Shares of Dell Technologies fell almost 6% premarket on Friday after the company projected underwhelming third-quarter profits and reported a second-quarter margin rate that missed Wall Street targets, dimming the effect of a higher full-year forecast

Demand for servers built to run heavy artificial-intelligence workloads has been climbing, a trend that has helped Dell, Hewlett Packard Enterprise and Super Micro Computer. But building and delivering those systems is costly, and competition for big contracts is intense, squeezing profitability.

J.P. Morgan analysts said Dell put clearing AI server backlogs ahead of protecting margins. They pointed to supply chain problems and expedited shipping adding to pressure already created by aggressive pricing to win large customers.

Dell margin rate falls short and profit estimate disappoints

For the second quarter, the company’s adjusted gross margin rate slipped to 18.7% from a year earlier, below the 19.6% analysts had expected.

For the current quarter, Dell guided to adjusted earnings of $2.45 a share, under the $2.55 consensus based on LSEG data.

Third-quarter sales are guided to $26.5-$27.5 billion, surpassing the $26.05 billion consensus forecast.

Even so, Dell lifted its outlook for the year, now forecasting sales of $105 billion to $109 billion, up from a prior range of $101 billion to $105 billion, helped by demand for AI-optimized servers. Full-year adjusted EPS guidance was increased to $9.55 from $9.40.

In early trading, the stock was last down 5.8% at $126.30, though it remained up more than 16% for the year through the previous close.

On valuation, Dell changes hands at 13.2 times projected earnings, above HPE’s 10.8 but below Super Micro’s roughly 16.3 and far under the S&P 500’s 22.3, according to Reuters’ report.

Ant Group sees steep profit drop

In separate news, Ant Group reported a sharp downturn in profit.

The Chinese fintech’s net income fell 60.5% to 4.74 billion yuan ($662.7 million) for the three months ended March 31, based on calculations using figures Alibaba released on Friday.

Alibaba said the drop mainly reflected “investments in new growth initiatives and technologies, and the decrease in fair value of certain investments.” The e-commerce company records its share of Ant’s results on a one-quarter lag.

Ant and Alibaba were co-founded by Jack Ma, and Alibaba owns 33% of the fintech firm.

Chipmaker Marvell Technology also faced investor pushback

Marvell Technology shares tumbled 15% before the opening bell Friday after the company’s data-center outlook came in below lofty expectations, a shortfall tied to uneven sales of its custom AI chips to major cloud clients.

Investor hopes for the sector have run high as valuations have surged on the AI build-out, but Nvidia’s latest results introduced fresh questions about how quickly cloud providers will keep spending.

On a call with analysts Thursday, CEO Matt Murphy said Marvell expects third-quarter data-center revenue to be flat from the prior quarter, unsettling investors looking for faster growth in the company’s most important business.

Marvell’s sales are increasingly tied to custom chip work for hyperscale operators such as Amazon.com and Microsoft, which are building more of their own capabilities to lessen reliance on Nvidia.

One outlet reported that Microsoft pushed back the timetable for its own AI processor, targeting 2028 or beyond. Murphy added that “lumpiness” is typical when large cloud companies construct new infrastructure, highlighting how shifting product roadmaps and spending cycles can affect orders.

Analyst Kinngai Chan at Summit Insights, who rates the stock “hold,” said Marvell lacks the scale of larger rivals and expects hyperscalers to keep a multi-vendor approach, a mix that could pressure margins.

The company competes with Broadcom for custom silicon and networking wins; Broadcom has not yet posted results for the July quarter. If the premarket slide persists, Marvell stands to shed close to $10 billion in market value. According to LSEG, Marvell trades at 23.95x forward 12-month earnings versus Broadcom at 39.03.

Looking ahead, Murphy said the custom business should be stronger in the fourth quarter, signaling a potential pickup later in the year as orders return.

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