Dell's AI Server Dominance: A Catalyst for Growth in an Energy-Constrained World

The AI revolution is not just about algorithms—it's about infrastructure. And Dell Technologies (DELL) is emerging as the linchpin of this transformation, leveraging its AI-optimized servers to fuel record revenue growth while addressing one of the era's most critical challenges: energy efficiency. With its PowerEdge XE9680L server and strategic partnerships, Dell is not only capturing demand but also positioning itself to outperform rivals like Hewlett Packard Enterprise (HPE) and Super Micro Computer (SMCI) in an increasingly competitive landscape.

The PowerEdge XE9680L: A Server Built for the AI Era

Dell's PowerEdge XE9680L is no ordinary server. Designed to handle the computational demands of AI workloads, it supports up to 72 high-wattage NVIDIA GPUs in a single rack—33% more density than its predecessor—while its direct-to-chip liquid cooling system improves power efficiency by 2.5x. This innovation is critical as enterprises grapple with soaring energy costs and data center thermal limits. By reducing power consumption and heat generation, the XE9680L allows customers to scale AI deployments without overloading infrastructure, making it a must-have for hyperscalers, governments, and enterprises racing to adopt large language models and generative AI.

The results are staggering: Dell's AI server orders hit $2.6 billion in Q1 2025, with shipments surging 100% year-over-year. The backlog now stands at $3.8 billion, up 30% sequentially, signaling sustained demand. This momentum is underpinned by Dell's “AI Factory” strategy, which integrates its hardware with NVIDIA's GPUs and Microsoft's cloud services, creating end-to-end solutions that competitors can't easily replicate.

Infrastructure Growth Amid Energy Constraints

The AI boom is straining energy infrastructure. Data centers already consume 2% of global electricity, and AI workloads are exponentially more power-hungry. Dell's focus on energy efficiency is thus a strategic advantage. Its liquid-cooled servers reduce cooling costs by up to 50% compared to traditional air-cooled systems, making them vital as regulators tighten emissions standards and companies seek to balance carbon footprints with computational power.

Why Dell's Valuation and Margins Outperform the Field

Dell's stock trades at just 0.72x P/S, far below its five-year average of 0.87x and well below SMCI's 0.95x and even HPE's 0.63x. This discount overlooks Dell's margin resilience: despite a 250 basis point gross margin dip in Q1 2025 due to AI server mix and pricing pressures, Dell's adjusted free cash flow hit $5.5 billion over the trailing twelve months. Analysts project fiscal 2026 EPS growth of 15.85%, driven by its $14.4 billion AI backlog and modular server sales.

In contrast, HPE's margins have eroded due to cost-cutting measures and inventory adjustments, while SMCI faces margin contraction from price competition and delayed AI platform adoption. Dell's ability to scale AI solutions profitably—thanks to its vertically integrated supply chain and direct sales force—gives it a moat in this hyper-competitive space.

The Urgency of Investing Before Bottlenecks Escalate

The AI infrastructure race is entering a pivotal phase. As enterprises and governments commit to net-zero goals, energy-efficient servers like the XE9680L will become table stakes. Dell's undervalued stock and margin resilience suggest it's primed to capitalize on this shift. Meanwhile, near-term EPS pressures—stemming from upfront R&D and supply chain investments—are temporary compared to the long-term tailwinds of AI adoption.

Investors should act now. Dell's P/S discount and robust backlog position it to outperform peers when energy constraints tighten further. As AI workloads outpace current infrastructure capacity, Dell's leadership in scalable, efficient computing could finally translate into the valuation upgrade it deserves.

Final Take: Buy Dell Before the AI Energy Crunch

Dell's AI server dominance isn't just a revenue story—it's a strategic imperative for industries navigating energy limits. With a stock price undervalued relative to its peers and a product pipeline that addresses the era's most pressing challenges, Dell is a buy for investors willing to bet on the future of computing. The race to power the AI revolution is on—and Dell is already in the lead.