A Dell gaming computer is shown at the E3 2017 Electronic Entertainment Expo in Los Angeles, California, U.S. June 13, 2017. REUTERS/ Mike Blake/File photo
(Reuters) -Dell Technologies raised its annual revenue and profit forecasts on Thursday, buoyed by demand for its AI-optimized servers that are powered by Nvidia's powerful chips, sending its shares up about 3% in extended trading.
Dell's infrastructure solutions group, which includes Nvidia-powered servers, surged 38% to a record revenue of $11.65 billion in the second quarter.
The company's servers are engineered to handle AI systems' intense computational demands, including training large language models.
"Enterprise remains a significant opportunity for us, as many are still in the early stages of AI adoption," Chief Operating Officer Jeff Clarke said in a post-earnings call.
Clarke said that Dell sees an emerging opportunity in "sovereign AI" by leveraging the company's strong relationships with governments globally.
Nvidia on Wednesday said nations building AI models in their own languages were turning to its chips, and that this would contribute about low double-digit billions to its revenue in the financial year ending in January 2025.
Nvidia CEO Jensen Huang called out the partnership with Dell earlier this year, saying they were helping businesses create their own "AI factories."
Dell's stock has risen 45% this year.
Dell said on Thursday it now expects annual revenue outlook to be between $95.5 billion and $98.5 billion, up from $93.5 billion and $97.5 billion previously. It also raised its annual adjusted profit per share forecast to $7.80, plus or minus 25 cents.
Demand for its AI-optimized servers rose about 23% sequentially to $3.2 billion in the second quarter. The backlog for these AI servers was $3.8 billion.
"Our pipeline has grown to several multiples of our backlog," Clarke said in a statement.
Revenue for the second quarter ended Aug. 2 rose about 9% to $25.03 billion, beating analysts' average estimate of $24.14 billion, according to LSEG data. It reported adjusted profit per share of $1.89 per share, compared with estimates of $1.71 per share.
While AI server demand soared, Dell's PC business struggled, losing market share to rivals. However, a strong refresh cycle for AI PCs is expected next year after Microsoft ends support for Windows 10.
Revenue for the client solutions group - home to PCs - fell about 4% to $12.41 billion.
"Dell lost PC shipment shares in key markets in the second quarter. It is the top vendor in the U.S. business market, but its competitors have shown growth and gained more shares than they did a year ago," said Mikako Kitagawa, director analyst at Gartner.
The company took a $328 million charge for workforce reductions in the second quarter.
Separately, Reuters exclusively reported earlier on Thursday that Dell is again exploring a possible sale of cybersecurity firm SecureWorks, following previous unsuccessful attempts to find a buyer.
(Reporting by Jaspreet Singh in Bengaluru; Editing by Tasim Zahid and Sayantani Ghosh)
