Dell Technologies: AI Server Revenue Surge and Dividend Hike Amid Mixed Quarter

Dell Technologies (DELL) has projected a significant increase in its artificial intelligence (AI) server revenue for fiscal year 2026 (FY26), expecting to reach $15 billion. This projection comes amidst a mixed quarter for the company, as it reported revenue that missed analyst estimates but earnings that topped expectations. Despite the revenue miss, Dell's management expressed confidence in the company's growth prospects and raised its annual dividend by 18%.

Dell's AI server business is expected to grow to at least $15 billion in FY26, given its robust opportunity pipeline, engineering, services, and financing advantages. This growth is driven by the increasing demand for AI infrastructure, particularly from large cloud-service providers, enterprises at scale, and the edge with the PC. The company's Chief Operating Officer, Jeff Clarke, stated that the deals booked with xAI and other customers have put the AI server backlog at roughly $9 billion as of today.



Dell's competitors in the AI server market include Super Micro Computer Inc. (SMCI) and Hewlett Packard Enterprise Co. (HPE). However, Dell's latest earnings report suggests that it may be profiting much more than its competitors in this market segment. For instance, Dell's Infrastructure Solutions Group (ISG) reported an operating margin of 18.1% in the fourth quarter, which is slightly higher than the 15.3% recorded in the same quarter of the previous fiscal year.



Dell's 18% dividend increase aligns with its strong long-term financial performance and growth prospects, signaling a commitment to shareholder return. The company reported record full-year revenue of $95.6 billion, up 8% year over year, and record diluted EPS of $6.38, up 39% year over year. Additionally, Dell's non-GAAP diluted EPS increased by 10% to $8.14. This dividend increase, along with the $10 billion increase in share repurchase authorization, demonstrates Dell's confidence in its ability to generate cash and return value to shareholders. The company's growth prospects, particularly in the AI server market, are expected to drive further revenue and earnings growth, supporting continued dividend increases and shareholder returns.

However, Dell faces potential risks and challenges associated with high production costs for AI servers, which may impact its adjusted gross margin rate in FY26. The high demand for AI servers has led to increased competition in the supply chain, resulting in higher costs for components such as GPUs, CPUs, and high-bandwidth memory. Additionally, the regional tiering of the AI-server manufacturing supply chain may contribute to higher production costs as more traditional electronic manufacturer-service (EMS) providers build at scale. To mitigate these risks and challenges, Dell may need to explore strategies such as optimizing its supply chain, negotiating better terms with suppliers, or investing in new technologies to reduce production costs.

In conclusion, Dell Technologies' projected $15 billion AI server revenue for FY26 is a significant increase compared to its competitors, driven by factors such as the growing demand for AI infrastructure, its robust opportunity pipeline, and engineering, services, and financing advantages. The company's 18% dividend increase aligns with its strong long-term financial performance and growth prospects, signaling a commitment to shareholder return. However, Dell faces potential risks and challenges associated with high production costs for AI servers, which may impact its adjusted gross margin rate in FY26. Investors should monitor Dell's progress in addressing these challenges and capitalizing on its growth opportunities in the AI server market.