Dell Earnings Preview: Can The AI Workhorse Outrun Its Own Cost Inflation?

Dell’s results after the close land right in the middle of the market’s identity crisis about the AI trade. The stock has pulled back with the broader AI complex over the last month, and tonight’s report is being treated as a referendum on whether AI demand is still accelerating or merely being repriced. With Wall Street looking for roughly $2.47–$2.48 in EPS and about $27.1B in revenue, investors will be less focused on the headline “beat or miss” and more on what the numbers say about margin resilience and the durability of Dell’s AI infrastructure pipeline into 2026.

Dell matters because it sits in the plumbing of the AI build-out. Its PowerEdge servers, storage platforms and “AI Factory” architecture are the boxes that turn Nvidia and AMD silicon into working clusters for hyperscalers, sovereign AI projects and thousands of enterprises. Management says it has already engaged with more than 3,000 enterprise AI customers and has a pipeline north of 6,000, while targeting AI-optimized infrastructure revenue of at least $20B in FY26. Add in Dell’s role in the forthcoming AI PC and Windows 10/11 refresh cycle and you get a company that is leveraged to both the cloud data center and edge compute sides of the AI S-curve. That is why bulls see Dell as one of the cleaner ways to own “AI capex” without having to pick a single model or software winner.

For tonight’s print, the first stop is the P&L: Street consensus implies about 16% EPS growth and roughly 11–12% revenue growth year-on-year. Dell's own guidance calls for Q3 revenue of $26.5–$27.5B and non-GAAP EPS of $2.45 ± $0.10, so anything toward the high end of those ranges with clean quality (not just mix or one-offs) will be read as a win. Within that, investors will want to see: 1) continued strength in Infrastructure Solutions Group (ISG) driven by AI servers; 2) commercial PC momentum and early signs of AI PC adoption; and 3) stable storage and services trends that support the “AI Factory” narrative. Unit data BofA flagged earlier – double-digit global PC shipment growth ex-U.S., with U.S. consumer up mid-teens on Win11 refresh – should provide a tailwind if Dell executed.

The real knife-edge, though, is margins. DRAM and NAND are in a pricing super-cycle driven by hyperscale AI demand, and several houses have spent the past month running spreadsheets on how much that input inflation could eat into Dell’s profits. BofA’s deep-dive suggests that by FY27, higher memory costs could knock 129 bps off gross margin, 76 bps off operating margin, and about $0.65 off EPS versus prior estimates, with the hit skewed toward the PC-heavy Client Solutions Group (CSG). Their view is that near-term impact is modest – Q3 should be largely insulated by inventory timing, with only a small drag starting in Q4 – and that Dell can lean on pricing and opex cuts to cushion the blow. Morgan Stanley is more skeptical, double-downgrading the stock on the idea that OEMs like Dell and HPQ are structurally exposed to this memory cycle and will struggle to fully reprice systems in such a competitive market.

Against that backdrop, tonight’s gross margin and operating margin commentary will likely matter more than the absolute EPS number. Investors will be listening for: how quickly higher memory pricing is flowing through Dell’s cost of goods; whether customers are accepting higher system prices for AI servers; and how much room there is to rationalize opex without starving growth. Clear, confident messaging that FY26 guidance can be maintained despite the cost pressure – in line with BofA’s view that Dell typically guides conservatively – would be a key box checked for the bulls. Any hint that FY27 targets are at risk would feed the bear case that the Street is too optimistic on mid-decade AI server profitability.

The October 7 analyst day raised the bar. Dell effectively rewrote its long-term playbook, lifting its revenue CAGR target from 3–4% to 7–9% and non-GAAP EPS growth to 15%+ annually, while promising to return roughly 80% of adjusted free cash flow to shareholders and grow the dividend at 10% or more per year through 2030. ISG is now expected to grow 11–14% with AI servers at 20–25% CAGR, and CSG is pegged at a more modest 2–3% but with a focus on higher-margin commercial and premium PCs. That framework is predicated on management’s view that AI capex in 2025 will exceed $400B and that Dell will be at the center of a broad enterprise and sovereign data-center refresh wave. Tonight’s call needs to show that those long-term slides weren’t just peak-cycle optimism.

So what does “good” look like? A clean top- and bottom-line beat versus Dell’s own guidance, AI server commentary that reinforces the $20B FY26 target, stable or only modestly lower margins with a clear roadmap to defend them into FY27, and unchanged FY26 guide despite the memory narrative. Evidence that AI PC and Win-10 end-of-life refreshes are starting to move the needle in CSG would help offset the market’s fear that the PC wave has already rolled through. Any incremental color on large wins – Tier-2 cloud players, sovereign AI projects, or marquee enterprise deployments – would help support the argument from bulls and new initiations like Piper that Dell is a structural share gainer in the next leg of AI spending.

Conversely, an “OK but not great” quarter would be one where revenues and EPS land near the midpoint, AI server commentary is positive but cautious, and management leans heavily on cost-control to protect margins. That probably keeps the stock range-bound and the debate unresolved. A true disappointment would involve a shakier margin outlook, any trimming of medium-term expectations, or language that suggests the AI server ramp is slipping versus earlier enthusiasm. With options pricing in roughly a high-single-digit move and the stock still only trading around 14x earnings despite all the AI rhetoric, the market is clearly braced for a big verdict. Tonight we find out whether Dell is still an AI workhorse—or just another passenger on a very expensive hype train.