Dell Technologies: A Must-Buy AI Stock Before It Surges

Published Date : 7/9/2025 

Dell Technologies has been a consistent performer in the AI server market, with a growing backlog and solid financials. Despite recent stock struggles, the company's potential for robust growth makes it a compelling investment. 

Dell Technologies has been delivering consistently solid growth, and its growing backlog points toward better times ahead. The healthy spending on artificial intelligence (AI) infrastructure and devices has been a tailwind for Dell Technologies in recent quarters. However, shares of the company have struggled to gain any momentum on the market despite an improving growth profile.

Specifically, Dell stock has gained just 5% in 2025 as of this writing. That's half of the returns clocked by the tech-laden Nasdaq Composite index this year. The stock received another shock recently as it dropped lower following the release of its fiscal 2026 second-quarter results (for the three months ended Aug. 1) on Aug. 28, losing nearly 9% of its value the following day.

However, a closer look will tell us that Dell's recent drop isn't justified. Let's look at the reasons why.

Dell's results were better than expected, and it also raised its guidance. Dell reported record revenue of $29.8 billion last quarter, an increase of 19% from the year-ago period. Meanwhile, its non-GAAP earnings rose identically to $2.32 per share. The numbers were ahead of consensus expectations, but its earnings guidance for the current quarter was lower than expected.

The company is expecting $2.45 per share in earnings in the current quarter, which is $0.10 lower than consensus expectations. Dell's margins have taken a hit in recent quarters as the company has been ramping up the output of its AI servers to meet the robust end-market demand. However, the good part is that the company is expecting its margins to improve as its AI server business scales up.

That's the reason why Dell now expects its adjusted earnings to jump by 17% in fiscal 2026 to $9.55 per share, up from the earlier expectation of 15% growth. What's more, the company has increased its revenue guidance by four percentage points to 12% to a midpoint of $107 billion. Investors, therefore, would do well to take a look at the bigger picture as the company is clearly benefiting from the rapidly growing demand for AI servers.

Dell points out that it shipped a record $8.2 billion worth of AI servers in the previous quarter. The company's AI server revenue of $10 billion for the first half of fiscal 2026 has already exceeded the revenue it generated from this segment last year. Importantly, the demand for Dell's AI servers remains solid as the company received fresh orders worth $5.6 billion last quarter.

It is now sitting on an AI server order backlog worth $11.7 billion. Dell expects to finish the year with $20 billion in AI server revenue. The updated forecast is a third higher than its prior expectation and would be double the AI server revenue it generated in the previous fiscal year. Dell's backlog suggests that it is indeed on track to meet its full-year AI revenue target, though don't be surprised to see the company exceed that mark as the year progresses.

The AI server market is expected to clock an annual growth rate of 34% through 2030, generating a whopping $837 billion in revenue at the end of the decade. The company's projected AI server revenue growth indicates that it is on track to grow at a faster pace than the end market. So, the company seems to be gaining more share of this lucrative space.

Dell points out that it witnessed the largest expansion in its customer base last quarter. Moreover, it is increasingly converting its proof-of-concepts into full production deployments. As a result, Dell could continue witnessing healthy growth in its revenue in the coming years given its ability to grow at a faster pace than the lucrative AI server market.

At the same time, the company's forecast that its AI margins will start improving from the second half of the year suggests that stronger earnings growth could be in the cards. The stock could deliver outstanding gains. Dell's 12-month price target of $150 as per 27 analysts covering the stock points toward a potential jump of 24% from current levels.

But if we take a look at the stock's valuation and its ability to deliver stronger earnings growth in the future, it could turn out to be a solid long-term winner. In fact, it is not surprising to see that analysts have increased their earnings growth expectations from Dell following its latest report.

Assuming that the company can indeed clock $12.26 per share in earnings after a couple of years and trades at 29 times forward earnings at that time, in line with the tech-laden Nasdaq 100 index (using the index as a proxy for tech stocks), its stock price could hit $358. That's nearly triple Dell's current stock price.

Dell is currently trading at just 13 times forward earnings, indicating that it is substantially undervalued. That's why investors looking for an AI stock that's capable of clocking robust long-term growth and is trading at an attractive valuation can consider accumulating Dell, as it is in a solid position to capitalize on the tremendous growth of the AI server market. 

Frequently Asked Questions (FAQS): 

Q: What is the current stock performance of Dell Technologies?

A: Dell Technologies' stock has gained just 5% in 2025, which is half of the returns clocked by the tech-laden Nasdaq Composite index this year. The stock dropped nearly 9% following the release of its fiscal 2026 second-quarter results.

Q: What are Dell's expected earnings for the current quarter?

A: Dell is expecting $2.45 per share in earnings for the current quarter, which is $0.10 lower than consensus expectations.

Q: What is Dell's projected AI server revenue for fiscal 2026?

A: Dell expects to finish the year with $20 billion in AI server revenue, which is a third higher than its prior expectation and double the AI server revenue it generated in the previous fiscal year.

Q: What is the expected annual growth rate of the AI server market?

A: The AI server market is expected to clock an annual growth rate of 34% through 2030, generating a whopping $837 billion in revenue at the end of the decade.

Q: What is the 12-month price target for Dell Technologies?

A: Dell's 12-month price target of $150 as per 27 analysts covering the stock points toward a potential jump of 24% from current levels. 

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