Dell Technologies: A High-Conviction Buy as AI-Driven Enterprise Infrastructure Reshapes the Hardware Sector

The artificial intelligence (AI) revolution is no longer a distant promise—it is a present-day imperative. As enterprises, governments, and cloud providers race to build AI-native infrastructure, the hardware sector is undergoing a seismic shift. At the forefront of this transformation stands Dell Technologies (DELL), a company that has not only embraced the AI infrastructure boom but has become its defining force. With a staggering $14.4 billion AI server backlog as of mid-2025 and a 29% market share in the global server market, Dell is positioned to outperform peers and deliver outsized returns to investors.

Strategic Positioning: From Commodity to Cornerstone

Dell's ascent in the AI infrastructure sector is rooted in its ability to align with industry-wide demand for scalable, secure, and efficient AI solutions. The company's PowerEdge servers, now equipped with AMD Instinct™ MI350 GPUs and NVIDIA Blackwell platforms, cater to the growing need for high-performance computing (HPC) and large language model (LLM) training. These systems are designed to handle the computational intensity of AI workloads while addressing enterprises' concerns about data sovereignty and cost efficiency.

Dell's strategic partnerships with chipmakers like NVIDIA, AMD, and Intel are not merely transactional—they are foundational. For instance, the integration of NVIDIA's Blackwell platform into Dell's offerings has enabled the company to deliver systems capable of processing complex AI tasks with unprecedented speed. Meanwhile, collaborations with Cohere, Glean, and Mistral AI have expanded Dell's ecosystem to include customizable AI applications, such as secure enterprise search and autonomous workflows. This ecosystem approach ensures Dell is not just selling hardware but offering end-to-end AI solutions tailored to enterprise needs.

Financial Resilience and Growth Catalysts

Dell's financials underscore its readiness to capitalize on the AI tailwind. In Q1 FY2026, AI server revenue surged by 68% sequentially to $3.2 billion, driven by a $12.1 billion order backlog that exceeded FY2025's total shipments. This momentum is expected to accelerate: AI server shipments are projected to reach $15 billion in FY2026 and exceed $44 billion by 2027. Analysts from Bank of America and Morgan Stanley highlight Dell's ability to maintain pricing power and margins, even in the face of supply chain bottlenecks.

The company's Infrastructure Solutions Group (ISG) has become a profit engine. In Q1 FY2026, ISG revenue grew 12% year-over-year to $6.3 billion, with operating margins expanding to 9.7%. Dell's disciplined capital allocation further strengthens its appeal: the company raised its quarterly dividend by 18% in June 2025 to $0.525 per share, reflecting confidence in cash flow resilience. With a PEG ratio of 0.8x and a price-to-sales ratio of 0.88x (well below the industry median of 1.43x), Dell's valuation appears compellingly undervalued relative to its growth trajectory.

Innovation and Sustainability: The Dual Engines of Long-Term Value

Dell's competitive edge extends beyond hardware. The company's Project Lightning, the world's fastest parallel file system, accelerates AI training by delivering twice the throughput of competitors. Additionally, its PowerCool eRDHx cooling solution reduces energy costs by 60% compared to traditional systems, enabling clients to deploy 16% more racks without increasing power consumption. These innovations align with the global push for sustainability, a critical factor for enterprises and regulators alike.

Dell's expansion into AI-enabled PCs and managed services, including full support for the NVIDIA AI stack, positions it to capture incremental revenue from the broader AI transformation. The AI Factory offering, which provides cost-effective on-premises inferencing, is expected to drive adoption among mid-market enterprises, further diversifying Dell's revenue streams.

Risks and Mitigations: A Balanced Perspective

While Dell's trajectory is bullish, challenges persist. GPU shortages from NVIDIA and AMD could delay order fulfillment, though Dell's diversified supplier base and inventory optimization strategies mitigate this risk. Competitive pressures from HPE and Supermicro remain, but Dell's enterprise relationships and scale provide a durable moat. Macroeconomic headwinds, such as trade tensions and interest rate uncertainty, could impact component costs and customer budgets. However, Dell's strong cash flow—$2.8 billion in Q1 FY2026—offers flexibility to navigate these pressures.

Investment Thesis: A High-Conviction Buy

For investors, Dell represents a rare combination of strategic foresight, financial strength, and undervaluation. Analysts project earnings per share (EPS) to grow at a compound annual rate of 15.35% through 2026, with a median price target of $135 (a 7.92% upside from current levels). Bank of America predicts EPS could more than double by 2030, from $8.14 to $19.01, driven by market share gains and margin stability.

Dell's AI server backlog serves as a leading indicator of future revenue, with $44 billion in projected shipments by 2027. Given the AI server market's anticipated 28% CAGR through 2030, Dell is well-positioned to outpace both the sector and the S&P 500's projected growth.

Conclusion: Capturing the Future of Enterprise AI

As AI reshapes the hardware sector, Dell Technologies has emerged not just as a participant but as a leader. Its strategic partnerships, innovative hardware, and financial discipline create a compelling case for long-term investors. With a robust backlog, expanding margins, and a valuation that underprices its potential, Dell offers a high-conviction opportunity to capitalize on the AI-driven infrastructure revolution. For those seeking exposure to the next decade of technological growth, Dell Technologies is a buy.