Dell Technologies: A Buy or Wait in the AI Era? Balancing Growth and Risks

The debate over whether Dell Technologies (DELL) is a compelling buy or a wait-and-watch opportunity hinges on its AI-driven transformation versus near-term financial and operational risks. With the global AI infrastructure market surging, Dell's strategic investments in AI hardware, software, and partnerships position it as a key player. However, margin pressures, competitive dynamics, and valuation metrics demand careful scrutiny.

AI-Driven Growth: A Strategic Edge

Dell's AI ambitions are anchored in its collaboration with NVIDIA, which has yielded the Dell AI Factory with NVIDIA-a platform designed to streamline enterprise AI deployment. This partnership has resulted in cutting-edge servers like the PowerEdge XE7740/XE7745, equipped with NVIDIA's RTX PRO 6000 Blackwell and Hopper GPUs according to Dell's announcement. These systems enable advanced use cases, including multimodal models and agentic AI, while the Dell Automation Platform reduces deployment complexity through tools like the AI code assistant with Tabnine.

The company has also expanded its AI ecosystem by validating Red Hat OpenShift on PowerEdge systems, offering scalable infrastructure for AI workloads. Meanwhile, the Dell AI Data Platform-featuring storage engines like ObjectScale and PowerScale-has been optimized for unstructured data, integrating with NVIDIA's NIXL library to cut infrastructure costs and improve efficiency.

On the edge computing front, Dell's AI PCs with Intel Core Ultra and AMD Ryzen AI Pro processors are gaining traction, enabling edge inferencing and small language model tuning. The Dell Pro AI Studio further accelerates development cycles, reducing time-to-market for AI applications. These innovations align with Dell's "device-to-data center" vision, positioning it as a unified AI infrastructure provider.

Financially, Dell's AI server business is a growth engine. In Q3 FY2026, Infrastructure Solutions Group (ISG) revenue hit $14.1 billion, with Servers and Networking revenue up 37% year over year to $10.1 billion. The company raised its full-year 2026 revenue forecast to $111.2–$112.2 billion, with AI server shipments projected at $25 billion-up over 150% from prior estimates. This momentum is driven by strong demand for PowerEdge AI servers, including the XE9680, which saw near-doubling order volumes in Q1 2026.

Near-Term Risks: Margins, Competition, and Debt

Despite these positives, Dell faces headwinds. Margin pressures are a concern, as the server market is highly competitive and capital-intensive. Adjusted gross margins dipped to 18.7% in Q2 2025, and rising memory component costs threaten profitability. While Dell's direct sales model and supply chain agility help mitigate some of these issues, the Infrastructure Solutions Group's operating margin of 12.1% (Q3 FY2026) remains under pressure.

Competition is intensifying. Rivals like Super Micro Computer and Hewlett-Packard Enterprise (HPE) are vying for AI server market share, while NVIDIA's dominance in AI chips creates a dependency risk for Dell. However, Dell's partnerships with Red Hat and NVIDIA, along with its focus on automation tools, provide differentiation.

Debt levels also warrant attention. Dell's leverage ratio rose to 1.6x in Q1 FY2026 due to recent debt issuance, though the company has returned $5.3 billion to shareholders year-to-date through buybacks and dividends. Balancing capital returns with reinvestment in AI infrastructure will be critical.

Valuation: A Moderate P/E Amid Growth

Dell's valuation appears reasonable relative to peers. As of December 2025, its trailing P/E ratio is 18.9, above its 10-year average of 16.52 but below NVIDIA's 44.79. This suggests investors are paying a premium for Dell's AI growth potential but not as much as for pure-play AI chipmakers.

The stock's P/E has fluctuated in 2025, ranging from 14.52 to 31.04, reflecting market sentiment on AI adoption cycles. While the 18.9 P/E is higher than historical averages, it aligns with Dell's strong revenue growth and AI shipment guidance. For context, HP and Lenovo trade at P/E ratios of 8.04 and 8.54, respectively, underscoring Dell's premium for its enterprise AI focus.

Conclusion: A Buy for the Long-Term, With Caution

Dell Technologies is well-positioned to capitalize on the AI infrastructure boom, with a robust product portfolio, strategic partnerships, and strong revenue growth. Its AI server business is a standout, with shipment projections up 150% and a clear path to market leadership. However, margin pressures, competitive threats, and debt management remain risks.

For investors with a long-term horizon, Dell's current valuation offers a compelling entry point, particularly given its role in enabling enterprise AI adoption. The stock's P/E ratio, while elevated, is justified by its growth trajectory and ecosystem advantages. That said, near-term volatility is likely as the company navigates margin challenges and competitive dynamics.

Final Verdict: Buy for investors who can tolerate short-term risks and are positioned to benefit from Dell's AI-driven transformation. Wait for those prioritizing margin stability or seeking lower-risk alternatives in the hardware sector.