Is Dell Technologies Stock Underperforming the S&P 500? Here's Why the AI Shift Could Be a Game-Changer

Dell Technologies (DELL) has lagged the S&P 500 over the past year, with its stock down 14.2% compared to the index's 11.4% gain. While this underperformance has spooked some investors, a deeper dive into the company's recent moves reveals a compelling narrative: Dell is positioning itself to capitalize on the $200 billion AI infrastructure market, even as it navigates headwinds in the PC sector. The question isn't whether Dell is underperforming—it is—but whether investors should buy the dip now. Here's why the answer might be yes.

The Underperformance: A Short-Term Story, Not the Whole Picture

Dell's stock has been dragged down by lingering weakness in the PC market, where demand has stalled amid Windows 10's end-of-life transition and enterprise buyers holding off on upgrades. The company's client solutions segment (CSG), which accounts for roughly half its revenue, grew just 5% year-over-year in Q1 2026, underscoring the sector's challenges. This has fueled skepticism about Dell's ability to sustain growth.

Yet, the broader underperformance masks a critical shift: Dell's pivot to AI-driven infrastructure. shows a clear divergence, but the company's Q1 results hint at a turnaround. While net revenue rose 5% to $23.4 billion, the real story lies in its AI segment.

The AI Catalyst: A Backlog of $14.4 Billion and Partnerships That Matter

Dell's AI infrastructure business is firing on all cylinders. In Q1, AI-optimized server orders hit $12.1 billion—surpassing total AI shipments for all of fiscal 2025—and the backlog now stands at $14.4 billion. This isn't just hype; Dell is delivering hardware that's critical to the AI boom.

Key growth drivers include:
1. Technical Leadership: Dell's PowerEdge servers, like the XE9680L and XE8712, are designed to support NVIDIA's Blackwell Ultra platform. These systems can house up to 144 GPUs per rack, making them ideal for large-scale AI training and HPC simulations.
2. Strategic Partnerships: Dell's AI Factory with NVIDIA is enabling enterprises like Lowe's and Worley to deploy AI solutions for inventory management and data privacy. Meta even uses Dell's infrastructure to run Llama 2 models on-premises.
3. Fiscal 2026 Guidance: Dell expects AI-driven server and networking revenue to hit $26 billion this year, up 16% from 2025. This is fueling Infrastructure Solutions Group (ISG) revenue growth, which rose 12% in Q1 to $10.3 billion.

Why the Bulls Are Betting on a Rebound

Analysts at Zacks Investment Research recently upgraded Dell to a Zacks Rank #1 (Strong Buy), citing its AI momentum and undervalued stock. Here's why the bull case holds water:
- Valuation Discount: Dell trades at a forward price-to-sales (P/S) ratio of 0.72–0.77x, far below the tech sector average of 6.14–6.36x. This suggests the market isn't pricing in the AI opportunity.
- Cash Flow and Buybacks: Dell generated $2.8 billion in operating cash flow in Q1 and returned $2.4 billion to shareholders via buybacks and dividends. With $3.8 billion in net cash, it's well-positioned to invest in R&D or acquisitions.
- Margin Stability: While AI servers carry thinner margins than traditional gear, Dell's scale and ecosystem partnerships (e.g., with NVIDIA) should mitigate this. Management expects non-GAAP EPS to hit $9.40 in fiscal 2026, a 15% jump from 2025.

The Risks: PC Slowdown and Margin Pressures

No investment is risk-free. Dell's PC business faces a bumpy road:
- Delayed Upgrades: The Windows 10 sunset is pushing some buyers to wait for Windows 11 upgrades, slowing demand.
- Competitive Pressure: Rivals like HPE and Super Micro are also chasing AI server deals, which could compress margins.

highlights the shift in focus. Investors must weigh near-term PC headwinds against Dell's long-term AI tailwinds.

Verdict: A Strong Buy at This Price

Dell's stock offers a compelling risk-reward trade. With a consensus price target of $137.05 (13.8% upside from recent prices), analysts are betting that AI infrastructure will drive a sustained rebound. The Zacks Strong Buy rating and robust backlog suggest this isn't just a cyclical bet—it's a structural play on enterprises' need for scalable AI hardware.

Historical performance reinforces this thesis. When Dell beats earnings expectations, its stock has historically averaged a 7.52% gain over the next 20 trading days, suggesting short-term momentum after positive surprises. However, the strategy's 1.44% compound annual growth rate (CAGR) from 2020 to 2025 underscores the need for patience: while post-earnings gains are sharp, sustained growth requires Dell to execute on its AI roadmap. For investors with a 12–18 month horizon, these results align with the thesis that Dell's AI pivot could unlock value beyond near-term PC headwinds.

Investment Takeaway: Dell's underperformance vs. the S&P 500 is temporary. Investors with a 12–18-month horizon should consider adding shares here, especially as AI adoption accelerates. The stock's valuation, cash flow, and partnerships make it a hidden gem in a tech sector increasingly dominated by software and cloud plays.

Disclosure: This analysis is for informational purposes only and not a recommendation to buy or sell securities.