Dell’s AI-Powered Growth: Is Now the Time to Buy Before Earnings Reacceleration?

Dell Technologies is riding a seismic wave of AI-driven demand, with its Infrastructure Solutions Group (ISG) delivering staggering growth. In Q2 FY2026, the company reported a 69% year-over-year surge in Servers & Networking revenue, driven by a record $10 billion in AI server shipments for the first half of the fiscal year alone [5]. This outpaced the previous full-year total of FY2025 and prompted Dell to raise its AI server shipment guidance for FY2026 to $20 billion, doubling its initial target [1]. The company now forecasts total FY2026 revenue of $105–$109 billion, with non-GAAP EPS of $9.55 at the midpoint [5].

The AI tailwinds are structural. Dell’s AI Factory initiative, which offers hybrid on-premises and cloud AI environments, has secured a $14.4 billion backlog in Q1 FY2026 alone [3]. Strategic partnerships with NVIDIA and AMD have enabled Dell to dominate high-performance computing systems tailored for AI workloads, including large language model training [1]. Analysts project global AI server demand to grow at a 35% compound annual rate through 2030, positioning Dell to capture a significant share of this market [5].

Critics may point to Q3 FY2026 guidance as a red flag, with revenue projected at $26.5–$27.5 billion and non-GAAP EPS of $2.45, below the $2.55 analyst consensus [2]. However, this softness is largely seasonal and short-term. Dell attributes the dip to timing of enterprise deployments and a concentration of AI demand in Q4 [2]. The Storage segment, while mixed, still grew 6% year-over-year in Q1 FY2026 [3], and ISG operating income expanded to $1.5 billion in Q3 FY2025 [1]. These metrics underscore Dell’s ability to maintain profitability even amid near-term volatility.

The company’s cost discipline and operational efficiency further strengthen its case. ISG revenue grew 36% year-over-year in FY2025, with operating income expanding despite margin pressures in commoditized hardware [3]. Dell’s forward P/E ratio of 12.3x suggests undervaluation relative to its AI-driven growth trajectory [5]. Analysts like Wamsi Mohan of BofA Securities anticipate AI server sales to exceed $20 billion in FY2026, with upward revisions likely in the next earnings report [4].

For investors, the question is whether Q3 softness is a buying opportunity or a warning. The data leans toward the former. Dell’s AI infrastructure business is now 43% of ISG revenue [2], and its backlog and strategic partnerships indicate sustained demand. While risks like margin compression and hybrid cloud monetization challenges exist, the long-term AI tailwinds are undeniable.

Source:
[1] Dell Technologies Delivers Strong Q2 as AI System Demand Surges [https://www.constellationr.com/blog-news/insights/dell-technologies-delivers-strong-q2-ai-system-demand-surges]
[2] Dell’s Earnings Beat Amid Stock Decline [https://www.ainvest.com/news/dell-earnings-beat-stock-decline-investors-watch-2508/]
[3] Dell Technologies Q1 2026 Earnings Surge on Record AI Server Demand [https://mlq.ai/news/dell-technologies-q1-2026-earnings-surge-on-record-ai-server-demand/]
[4] Dell’s AI Server Sales to Drive Higher Revenue and Profit Growth [https://www.ainvest.com/news/dell-ai-server-sales-drive-higher-revenue-profit-growth-2026-analyst-2508/]
[5] Dell’s AI Growth Momentum vs. Near-Term Earnings Concerns [https://www.ainvest.com/news/dell-ai-growth-momentum-term-earnings-concerns-strategic-buy-opportunity-2508/]