Karishma Vanjani

One of the biggest unknowns for Dell Technologies is the impact of President Donald Trump's tariffs.

When asked on Thursday's earnings call about Trump's threat to add another 10% tariff on China after a 10% duty was imposed earlier in February, management indicated that Dell has only factored in the initial levy in its guidance.

"This is a pretty darn dynamic environment," said Jeffrey Clarke, chief operating officer, adding that Dell's supply chain is diverse and can help the company minimize the impact of trade regulation. "Whatever tariff we cannot mitigate, we view that as an input cost. And as our input costs go up, it may require us to adjust prices," he added.

Dell, a seller of computers and servers for artificial intelligence, on Thursday reported earnings of $2.68 per share for the fiscal fourth quarter, which ended in January, above the $2.52 analyst estimate on FactSet. Revenue for the quarter came in a bit light at $23.9 billion; consensus was at $24.6 billion.

The stock was down 6.5% to $100.82 on Friday morning.

What the company said about its margins is weighing on shares. Dell said given the competition in the market and rising mix of AI servers in revenue that have lower margins, it expects the gross margin rate to decline roughly 100 basis points year over year in the fiscal year ending January 2026. In the latest fiscal year, gross margin had fallen 50 basis points due to similar reasons. (100 basis points is one percentage point.)

Nearly nine out of every 10 analysts tracking Dell maintain a rating of Buy on the stock. After earnings, those views hadn't changed.

But J.P. Morgan and Melius Research raised caution about tariffs.

Ben Reitzes from Melius Research lowered his estimate for margins in the Client Solutions Group, a business unit of Dell that sells computers, monitors, and peripherals. He cited concerns about tariffs and competition. Reitzes maintained his Buy rating and $155 target price on the stock.

"We know tariffs and the impact of tariffs on the economy remain a real risk, but Dell is better positioned with a diversified portfolio than many of its IT Hardware peers," Reitzes wrote.

J.P. Morgan's Samik Chatterjee said that he's on the lookout for "potential downsides if tariffs were to be more widely implemented across major countries in the supply chain, with both end-market drivers and macro drivers for the company continuing to be less than predictable at this time."

He also kept his Overweight rating and $150 price target on shares.

Write to Karishma Vanjani at karishma.vanjani@dowjones.com

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February 28, 2025 10:51 ET (15:51 GMT)

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