Dell poised to capitalize on AI server market growth

Dell Technologies is well-positioned to capture the growing demand for AI servers, driven by the generative AI boom and push towards digital infrastructure. Following a PC downturn in 2023, the company is now on a positive uptrend. Dell's focus on innovation and digital transformation will enable it to capitalize on the increasing demand for AI servers.

Dell Technologies Inc. (NYSE: DELL) is well-positioned to capitalize on the growing demand for AI servers, driven by the generative AI boom and the push towards digital infrastructure. Following a PC downturn in 2023, the company has seen a resurgence in server and storage growth, largely fueled by AI workloads. This positive trend is expected to continue, positioning Dell Technologies as a significant player in the AI server market.

According to Chris Mello from Blocks & Files, demand for AI servers is driving up Dell's revenues. Yvonne McGill, the CFO of Dell, noted that the company experienced unprecedented demand for AI-optimized servers in the first quarter of fiscal year 2026. Dell Technologies reported $12.1 billion in AI-related orders and a remaining backlog of $14.4 billion, indicating strong demand for its AI servers [1].

The company's market share in the server market has been growing. As of the fourth quarter of 2024, Dell Technologies held a 7.2% market share, driven by AI investments and GPU-rich server deployments by major cloud providers [1]. Additionally, partnerships with leading tech companies such as Nvidia, AMD, HuggingFace, Meta, Mistral, and Google further strengthen Dell's position in the AI server market.

Global data center spending by large cloud players is on the rise, fueled by advancements in AI and ongoing digital transformation. According to Moody's, global data center spending is expected to double over the next five years, with AI-specific data center energy usage growing by an average of 43% annually between 2023 and 2028 [1]. This growth in data center capacity is expected to drive an increase in orders for Dell's AI servers.

Dell Technologies' focus on innovation and digital transformation is evident in its recent product launches and partnerships. The company has launched several new AI and server products, including the PowerCool platform and the Dell AI Data Platform. These products are designed to meet the increasing demand for AI workloads and support the growth of data center capacity.

Valuation-wise, Dell Technologies appears to be trading at a discount relative to the sector median. The company's forward revenue growth stands at 8.07%, compared to the sector median of 7.39%, and its forward EPS growth stands at 13.93% compared to 14.00%. The forward PEG ratio is at 1.00x, the GAAP forward P/E is at 17.50x, and the forward EV/EBITDA is at 9.32x, all indicating a discount relative to the sector median [1].

However, the biggest risk for Dell Technologies is hyperscaler spending cycles. A significant portion of the recent surge in Dell's orders has been from cloud service providers building AI infrastructures. Any scaling back in AI capex plans by these hyperscalers could negatively impact Dell's revenue growth.

In conclusion, Dell Technologies is well-positioned to capture the growing demand for AI servers. With a strong focus on innovation, strategic partnerships, and a robust product pipeline, the company is poised to benefit from the continued growth in AI workloads and data center capacity. Investors should keep an eye on Dell Technologies as it navigates the evolving AI landscape.

References:
[1] https://seekingalpha.com/article/4805368-dell-positioned-to-capture-ai-server-market