Dell warns 'nonlinear' demand for AI servers may 'persist'

Dell has confirmed an order backlog of $14.4 billion for AI optimized servers, yet it is tempering investors' expectations for future sales by talking about demand being lumpy and dependencies in the pipeline.

The Texas-based IT giant is one of the chief beneficiaries of the AI datacenter gold rush, making itself a prime infrastructure provider thanks to the close links it has built with Nvidia, chief supplier of GPU accelerator kit.

"We experienced exceptionally strong demand for AI optimized servers, building on the momentum discussed in February and further demonstrating that our differentiation is winning in the marketplace," Dell vice chair and chief operating officer Jeff Clarke told investors on a call to discuss its Q1 FY26 earnings.

But while the company is profiting from making itself a one-stop AI infrastructure shop, and demand remains high, Clarke struck a note of caution.

"AI momentum continues to remain strong. That said, given the scale of these opportunities, variability and timing and choices around technology, the inherent nonlinear nature of demand and associated shipments is likely to persist," he said.

When asked how the AI server market is shaping up for the near future, Clarke responded: "The customer deployments that we have in front of us are large, they're complex, they have very detailed scheduled deliveries. There's lots of dependencies on this. We've talked about this business being lumpy and nonlinear."

The Register has covered at length how the AI frenzy has bumped demand for datacenter capacity, while Nvidia's increasingly power-hungry parts are causing headaches as facilities need power and cooling upgrades to support them, and sometimes entirely new bit barns have to be built, all leading to delays.

"The dependencies in this business are waiting for datacenters to be built, power to be provided, direct liquid cooling infrastructure put in place. We're orchestrating a highly complex supply chain. You've probably seen reference that a GB200 NVL 72 rack has 1,200,000 parts in it. Coordinating and orchestrating that across our value add, whether that be CDUs, cold plates, the racks themselves, power shelves, what have you. That's what we're working through," Clarke added.

These factors are what led to the $14.4 billion backlog of orders, which Clarke says is a good place to be in. "We love where the backlog is. It's healthy," he added.

The analysts seem to agree. Dell's massive AI backlog explained the upbeat forecast for the firm, with its stock up after an extended trading session on Thursday.

For its fiscal 2026 first quarter ended May 2, Dell made revenue of $23.4 billion, up 5 percent on the same period last year, with operating income of $1.2 billion, up 21 percent year-on-year.

The Infrastructure Solutions Group (ISG) saw revenue up 12 percent to $10.3 billion, thanks to that AI demand, with the Servers and Networking segment up 16 percent.

The Client Solutions Group (CSG) saw its revenue up 5 percent to $12.5 billion, but while Commercial Clients were up by 9 percent, Consumer revenue was down 19 percent as individual buyers held off purchasing PCs – perhaps a symptom of US President Trump's "volatile trade policies".

On the subject of those trade policies, and tariffs in particular, Dell claimed it had not really been affected.

"We did not make any price moves in the quarter. We were steady. We have been through this before. And I think we weathered the storm quite well and ultimately took care of our customers and served them quite well," Clarke said.

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In response to a later question, he conceded that there had been some "pull forward" from customers buying more than planned ahead of the tariffs being imposed, which could lead to less than expected demand in later quarters.

"I'm certain we had some customers pulling demand. They certainly saw what was happening in the marketplace and how dynamic things were," he said. "We did see a slowdown in month three. Month one was greater than January. Month two was greater than February. Month three slowed in weeks 10 through 12. And actually, all three US businesses, commercial PCs, traditional servers, and storage. So clearly there was a bump along the journey there," Clarke added.

For its second quarter, Dell is expecting revenue somewhere between $28.5 billion and $29.5 billion, up about 16 percent on last year. The full year prediction is for takings to be between $101 billion and $105 billion, up about 8 percent. ®