Dell Technologies Inc. fell the most in four years on Friday after its first revenue increase since 2022 wasn’t enough to impress investors with high expectations for the company’s AI server business. 

Sales increased 6.3 per cent to US$22.2 billion in the period ended May 3, the Round Rock, Texas-based company said Thursday in a statement. Analysts, on average, estimated $21.6 billion. Profit, excluding some items, was $1.27 a share, compared with the average projection of $1.23.

Revenue from Dell’s powerful servers equipped to handle artificial intelligence tasks more than doubled from the previous quarter to $1.7 billion, Chief Operating Officer Jeff Clarke said in the statement. The backlog for those machines increased more than 30 per cent quarter-over-quarter to $3.8 billion, he added.

But excitement around AI demand for Dell’s machines created high expectations for Thursday’s results. Shares dropped as much as 19 per cent Friday morning in New York, the most since March 2020.  

Dell’s stock had more than tripled over the past 12 months as investors have viewed the hardware maker as a beneficiary of demand for artificial intelligence. Large corporations increasingly need high-powered servers to train and run demanding generative AI tasks, which are sold by Dell and few other companies.

“Relative to very high expectations, Dell’s Q1 25 results were disappointing,” Toni Sacconaghi, an analyst at Sanford Bernstein, wrote. He pointed out that a decrease in adjusted operating margin in the quarter resurfaces “concerns that AI servers are being sold at near-zero margins.”

Dell expects the momentum from AI demand will continue through the year, Chief Financial Officer Yvonne McGill said on a conference call after the results were released.

The company raised its revenue outlook for the fiscal year ending in February 2025 to a range of $93.5 billion to $97.5 billion, an eight per cent increase at the mid-point, which would top analysts’ average estimate of a seven per cent gain. Adjusted profit will be about $7.65 a share, compared with the $7.70 average estimate.

Still, that outlook implies relatively flat AI server sales through the rest of the year, which “will cast some doubt on near-term competitiveness,” wrote Bloomberg Intelligence analyst Woo Jin Ho. 

For its better-known business of selling personal computers, Dell reported $12 billion in revenue, little changed from the same period a year earlier. Sales of business PCs increased three per cent to $10.2 billion, surprising analysts who expected a two per cent drop.

The PC market had seen a historic decline over the last two years after many consumers, businesses and schools purchased laptops in the early months of the pandemic. In the first quarter, shipments picked up 1.5 per cent — the first increase since the end of 2021 — industry analyst IDC said in April. 

PC-makers have been hopeful those numbers signaled the end of the slump and that growth would accelerate in 2024 with the launch of machines equipped with a new version of Microsoft Corp.’s Windows software as well as hardware equipped with chips to handle artificial intelligence tools.

Dell’s primary PC competitor, HP Inc., reported signs of a recovering computer market Wednesday, sending its shares up 17 per cent on Thursday. Like Dell, HP reported a bump in sales among its business customers rather than consumers.

Total sales at Dell’s infrastructure unit, which includes servers and networking and storage equipment, jumped 22 per cent to $9.2 billion.