What DELL Learned from NVDA to Benefit in AI Buildout

**SPEAKER_1** (0:00)
All right, let's go deep on Dell and tomorrow's earnings report. That is our tech spotlight, and Don Gentile, data platforms and resiliency analyst at Hyperframe Research is with me now.
So we think about Dell. Let's hear what your thoughts are when it comes to Dell for the earnings.

**Don Gentile** (0:18)
Yeah, so we have a great story for infrastructure providers like Dell, right? Great backlog coming into the quarter. Nvidia gave us a really good sense of the demand right now, and so it's Dell's job to execute on that, get the best margins that they can, and it continue to expand their footprint in the enterprises. So we're looking forward to, I think, a strong announcement to that.

**SPEAKER_1** (0:39)
Well, what is it about Dell specifically? I mean, Nvidia has a million and one partnerships.
What is it about Dell which really had a turnaround? You have the Silver Lake move in there and it was listed, it wasn't listed, then it was back. We talk about PC demand. Tell me a little bit about Dell in particular. What Dell is doing right?

**Don Gentile** (0:59)
Well, you and I can remember back when they were just a PC company, right? Right. Obviously, they really expanded their enterprise footprint and now Dell has the ability to put together storage, networking, data protection, resiliency, and the whole package power and cooling into rack systems that are very easy for enterprises to implement, and hyperscalers and Neo Clouds as well. So they have become really an integrator. They'll take the platform that Nvidia provides and then put that in rack scale, so that customers can easily deploy them in their data centers.

**SPEAKER_1** (1:32)
And you talk a lot about the backlog and why that's so important for the company. I mean, as they try to take the AI demand and the delivery, how do you think that's going?

**Don Gentile** (1:42)
Well, so Dell doesn't have to establish the demand. We know that from Nvidia. Nvidia has told us in spades and any other earnings announcements as well that there's tremendous backlog there. Dell came in last quarter with a $51.3 billion server backlog. Their job is to service that as quickly as possible, ship while maintaining their margins. And so that's what we're going to be looking for tomorrow, is how quickly they're able to serve that backlog while it grows and also be able to maintain their margins.

**SPEAKER_1** (2:11)
Where does VR Reuben fit into this Dell story?

**Don Gentile** (2:14)
Well, it's a very exciting new technology. Obviously, there are many generations, and Nvidia is constantly coming out with new generations of processors. That doesn't necessarily mean the older ones are obsolete, but VR Reuben is clearly the crown jewel right now. And Dell actually implemented one of the first racks at CoreWeave. I remember Michael Dell posting about it, and the pride that the company has in being able to take that chip and put it into a complete rack system and have it be on the customer floor within weeks of the announcement is huge.
That shows their ability to execute.

**SPEAKER_1** (2:48)
And when I think about demand, I mean, we talked about Nvidia, but we saw that AI was real. We saw the monetization of AI. We watched cash flow. In fact, overall, just for the quarter, earnings growth was really good. I mean, if you looked at Amazon and Google, they skewed that big number even higher because they did so well. I mean, what were your takeaways from some of those Mag7 names?

**Don Gentile** (3:08)
So I think that AI is here to stay. The backlog for all of them is tremendous.
I know for myself, I am a great user of AI. I think you probably would be as well. So all of us are implementing it in our daily lives. So we're finding that companies like Dell, like HPE, Supermicro, Lenovo are all doing a great job of starting to convert their portfolio to AI systems. The challenge for them, again, is being able to maintain the margins as they do that.

**SPEAKER_1** (3:41)
So we think about efficiency and cost and the margins that the company can sort of bring in. And we did see the margins slip a little bit in the last quarter, right? You noted that. Tell me a little bit about that.

**Don Gentile** (3:55)
Well, the balance is between the traditional products and the AI products. The AI products have tremendously expensive components in them. The memory, the GPU, the flash, storage, all of those pieces take away from the profitability of the units. And so what Dell has to do is they have to balance that with the other parts of the portfolio that I talked about, the traditional servers and storage. The data estate is massive. So every time companies are committing AI executions, they're building the data. There's more data and that has to go somewhere. That has to be stored somewhere for context and for persistence. And so the storage alone, the attach to these AI systems is tremendous. And they get a lot of margin out of that as well.