Is Dell Stock a Buy Before Its August 28 Earnings Report? Assessing AI-Driven Growth Amid Macroeconomic Challenges

The debate over whether Dell Technologies (DELL) is a compelling buy ahead of its August 28 earnings report hinges on two critical forces: the explosive growth of AI-driven infrastructure sales and the headwinds posed by macroeconomic volatility. With AI server revenue surging and a $3.8 billion backlog, Dell appears well-positioned to capitalize on the AI revolution. However, rising interest rates, grid capacity constraints, and market skepticism about AI's profitability create a complex risk-reward profile. Let's dissect the numbers, trends, and strategic positioning to determine if DELL is a buy.

AI Infrastructure: A Growth Engine Outpacing Expectations

Dell's Infrastructure Solutions Group (ISG) has become a powerhouse, driven by AI-optimized servers. In Q2 2025, ISG revenue hit $11.6 billion, a 38% year-over-year increase, with AI server revenue alone reaching $3.2 billion—up 23% sequentially. Over the first half of fiscal 2025, AI server revenue totaled $5.8 billion, underscoring a 22% CAGR in the total addressable market (TAM) for AI hardware and services.

Dell's partnerships with NVIDIA and AMD are pivotal. Its AI servers, powered by GPUs from these chipmakers, are in high demand from enterprises and Tier 2 cloud providers. The company's $3.8 billion AI server backlog and a pipeline “several multiples” larger suggest robust forward-looking demand. Analysts project AI server revenue to grow 30% in fiscal 2025, with full-year revenue guidance raised to $95.5–$98.5 billion.

Macroeconomic Headwinds: A Double-Edged Sword

While AI demand is surging, macroeconomic factors threaten to temper Dell's growth. Rising interest rates and enterprise budget constraints could slow IT spending. Additionally, the AI market is facing a reality check: MIT's Project NANDA reports that 95% of enterprise AI initiatives have yet to deliver measurable returns, fueling investor caution. This skepticism has triggered a sell-off in AI-related stocks, including Dell, which fell 2.9% post-Q2 earnings due to a $0.13 EPS miss and a negative return on equity (-226.48%).

Grid capacity challenges further complicate matters. Deloitte's 2025 AI Infrastructure Survey highlights that 72% of executives rate grid capacity as a “very” or “extremely” challenging issue. As AI data centers consume massive electricity, power companies and regulators are scrambling to meet demand, which could delay infrastructure expansion and increase costs.

Valuation and Analyst Sentiment: A Mixed Picture

Dell's valuation appears attractive from a long-term perspective. It trades at a Forward P/E of 14.62 and a PEG ratio of 0.88, below the sector average of 1.53. Analysts project 16.09% EPS growth in 2026 and 9.1% revenue expansion, driven by AI adoption. However, the Zacks Rank system assigns a “Sell” rating, citing valuation concerns and declining analyst consensus.

Despite this, 13 of 17 analysts maintain “Buy” or “Outperform” ratings, with price targets averaging $142.76 (a 3.55% upside from the post-earnings price). Notably, Citigroup and Evercore ISI Group raised their targets to $160, citing Dell's leadership in AI infrastructure and strong backlog.

Strategic Positioning: Strengths and Risks

Dell's $5.8 billion in AI-related revenue year-to-date and its $14.4 billion AI server backlog in Q1 2026 highlight its competitive edge. The company's focus on hybrid cloud solutions and AI-driven process optimization, coupled with a $328 million charge for workforce reductions, signals a commitment to cost efficiency.

However, risks persist. The Client Solutions Group (CSG) faces pressure from competitive pricing and a soft consumer market, contributing to a 19% decline in consumer revenue. Additionally, supply chain bottlenecks and long interconnection timelines for data centers could delay revenue recognition.

Investment Thesis: A Calculated Buy?

For investors willing to accept short-term volatility, DELL presents a compelling case. Its leadership in AI infrastructure, robust backlog, and strategic partnerships position it to outperform in a fragmented market. The $142.76 average price target and 16% EPS growth forecast suggest upside potential, particularly if the company exceeds expectations in its August 28 earnings report.

However, caution is warranted. The Zacks Rank's “Sell” rating and MIT's findings on AI's unproven ROI highlight the need for patience. A stop-loss at $115 could mitigate risks in a broader tech sector downturn.

Conclusion

Dell's AI-driven infrastructure sales are a tailwind that cannot be ignored. While macroeconomic headwinds and valuation skepticism persist, the company's strong backlog, strategic investments, and leadership in AI servers make it a high-conviction buy for investors with a medium-term horizon. The August 28 earnings report will be pivotal—watch for updates on backlog conversion, margin stability, and guidance for 2026. For now, the data suggests that DELL's AI momentum is real, and the risks, while present, are manageable for a diversified portfolio.

Final Verdict: Buy with a stop-loss at $115, but monitor macroeconomic updates and grid capacity developments.