Dell Technologies (DELL): AI-Driven Growth and Q2 2026 Earnings Outlook – A Buy Before the Report?

Dell Technologies (DELL) has emerged as a pivotal player in the AI revolution, leveraging its hardware expertise and strategic partnerships to dominate the AI server market. With Q2 2026 earnings on the horizon, investors are scrutinizing whether the stock's current valuation and AI-driven momentum justify a “Buy” recommendation.

Valuation Metrics: A Discounted Opportunity

Dell's valuation appears compelling when compared to industry peers and historical averages. The stock trades at an EV/EBITDA of 10.90, outperforming 57.8% of its Hardware industry counterparts, where the median is 13.44. Its P/S ratio of 0.82x is a stark discount to the sector average of 6.67x, suggesting the market is undervaluing its revenue-generating potential. While the P/B ratio is problematic (due to negative book value in recent quarters), other metrics like the P/E ratio of 20.90 align with growth expectations for a company with expanding margins and AI-driven revenue.

AI-Driven Growth: A Catalyst for Long-Term Value

Dell's AI server business is the cornerstone of its growth strategy. In Q2 2026, the company reported $3.2 billion in AI server revenue, an 80% year-over-year increase, driven by demand for AI-optimized systems like the PowerEdge 9680. This momentum is supported by a $3.8 billion backlog and a pipeline several times larger, indicating sustained demand.

Strategic partnerships with NVIDIA, AMD, and Elastic have further solidified Dell's position. For instance, its AI Data Platform, enhanced with NVIDIA-powered acceleration, streamlines data ingestion and inferencing, while the AI Factory initiative enables hybrid AI environments that balance on-premises and cloud computing. Collaborations with enterprises like Lowe's—using Dell AI Factory with NVIDIA to optimize inventory and operations—highlight the practical applications of its solutions.

Margin Resilience and Strategic Efficiency

Dell's Infrastructure Solutions Group (ISG) reported $43.6 billion in revenue for fiscal 2025, with operating margins expanding to 18.1% in Q4 2025. This margin resilience stems from cost-cutting measures, including workforce reductions and a shift to a channel-partner-driven sales model. The company's $10 billion share repurchase program and an 18% dividend increase further signal confidence in future cash flows.

Risks and Challenges

Despite its strengths, Dell faces headwinds. Supply chain bottlenecks could delay fulfilling its AI server backlog, risking customer attrition. Competition from cloud giants like Amazon and Microsoft, which are expanding into on-premises AI, could erode market share. Additionally, energy costs and regulatory pressures around AI sustainability may require further investment in cooling technologies like its PowerCool eRDHx.

Analyst Sentiment and Earnings Outlook

Analysts are optimistic. Morgan Stanley raised its price target to $170 from $145, while Evercore and Mizuho set targets at $160. The consensus EPS estimate for Q2 2026 has increased by 1.52% in the past 30 days, with a positive Earnings Surprise Prediction (ESP) of +0.73%. Analysts project a 20.63% year-over-year increase in FY2026 earnings per share to $9.47, driven by AI server demand and margin expansion.

Investment Thesis: A Buy Before Earnings

Dell's valuation metrics, while mixed, suggest an attractive entry point for investors. The stock's P/E of 20.90 and P/S of 0.82x indicate strong growth potential relative to its revenue and earnings. Its AI-driven momentum—bolstered by strategic partnerships, a robust backlog, and expanding margins—positions it to capitalize on the AI infrastructure boom, which is projected to grow at a 22% CAGR.

While risks like supply chain constraints and competition exist, Dell's cost discipline, ecosystem of partners, and technological leadership mitigate these concerns. The company's recent upgrades to its AI Data Platform and AI Factory initiative demonstrate its ability to adapt to evolving customer needs.

Conclusion: Investors seeking exposure to the AI hardware sector should consider Dell Technologies ahead of its Q2 2026 earnings report. The stock's undervaluation, coupled with its AI-driven growth trajectory and margin resilience, makes it a compelling “Buy” for those willing to navigate near-term risks for long-term gains.