Dell (DELL) Positions for AI Growth in 2025
2min read As the calendar turns to 2025, Dell Technologies emerges as a compelling long-term investment idea. Despite recent weakness following its third-quarter results and cautious guidance for the fourth quarter, Dell’s strong position in AI infrastructure and its diversified business model offer a promising risk-reward profile for the year ahead.
Shifting from Consumer to Enterprise Growth
Dell’s business is often perceived as a traditional PC company, but its growth story increasingly revolves around its Infrastructure Solutions Group (ISG). While the Client Solutions Group (CSG), which sells desktops, notebooks, and peripherals, contributes a significant portion of revenue, its consumer-focused segment remains a smaller and struggling part of the business.
Consumer revenue declined 19 percent year-over-year in the third quarter, reflecting weaker demand and profitability challenges. In contrast, ISG, which includes servers, networking equipment, and storage products, delivered impressive year-to-date growth of 31 percent, making it the company’s primary driver of expansion.
AI Infrastructure as a Key Catalyst
Dell’s ISG performance highlights its leadership in the AI infrastructure market. In the third quarter, ISG revenue surged 34 percent year-over-year to $11.37 billion, driven by a record $7.36 billion in server and networking revenue.
Notably, Dell shipped $2.9 billion worth of AI servers, building a $4.5 billion AI server backlog. The company’s five-quarter AI pipeline grew more than 50 percent sequentially, showcasing robust demand across its customer base.
Traditional server demand also remains strong, fueled by enterprise modernization efforts that prioritize power efficiency and denser configurations. These advancements free up resources to support growing AI workloads, making Dell’s traditional and AI servers complementary offerings for modern data centers.
AI Partnerships and Strategic Initiatives
Dell’s partnership with NVIDIA through Project Helix underscores its commitment to the AI ecosystem. The initiative aims to simplify the deployment of generative AI models by leveraging Dell’s infrastructure and NVIDIA’s advanced tools. This collaboration positions Dell as a key player in the broader AI buildout, providing businesses with scalable and efficient solutions for adopting next-generation AI technologies.
Short-Term Headwinds and Long-Term Tailwinds
While Dell’s AI-driven momentum is promising, the company faces near-term challenges. Fourth-quarter guidance reflects cautious spending by enterprise and large customers, particularly in PC and storage IT budgets.
However, Dell remains optimistic about fiscal 2026, which begins in February 2025. The company anticipates multiple tailwinds, including robust AI demand and a long-overdue refresh cycle for PCs and traditional servers, driven by an aging installed base.
Risks and Considerations
Investors should be mindful of several risks. The competitive pricing environment in the consumer segment continues to pressure margins, while concerns about a potential digestion phase in the AI infrastructure market could temper growth expectations. Additionally, macroeconomic uncertainty could further weigh on enterprise IT spending.
Investment Outlook
Despite these challenges, Dell’s current valuation and long-term growth prospects make it an attractive investment candidate. Analysts project a 20 percent year-over-year increase in earnings per share for fiscal 2026, reaching $9.40. The stock’s pullback following third-quarter results has improved its risk-reward profile, offering an entry point for investors seeking exposure to the AI infrastructure market.
Conclusion
Dell’s strategic pivot toward AI infrastructure and enterprise solutions positions it as a key beneficiary of the ongoing digital transformation. While short-term pressures may weigh on performance in the coming quarters, the company’s robust AI pipeline, strong partnerships, and anticipated refresh cycles offer a path to sustained growth.
For investors with a long-term horizon, Dell presents an opportunity to capitalize on the expanding role of AI in reshaping enterprise technology.