IT hardware stock Dell Technologies (DELL) has gone nowhere for two years, but that could be about to change. The Texas-based company’s stock has shot to the top of Wells Fargo’s IT hardware selections. AI server revenue is projected to rally to $30 billion–$35 billion or more in fiscal 2027 (to end Jan).
In November, Dell projected $25 billion in fiscal 2026 revenue from AI server shipments, up from its previous $20 billion estimate. The company’s AI server backlog rose to $18.4 billion by the end of Q3, fuelled by $12.3 billion in new orders. Additionally, it shipped servers worth $5.6 billion in the quarter.
Having secured deals with the US Department of Energy and Abu Dhabi’s AI firm G42, the company also counts Elon Musk’s AI start-up xAI, now merged with Space X, and CoreWeave (CRWV) among its customers.
Massive capex
Big Tech’s multi-billion dollar push to build out AI infrastructure has triggered price increases for DRAM (dynamic random-access memory) and flash memory NAND. This comes amid high competition in the server market.
| Dell Technologies (DELL) | Price: $122.27 | Market cap: $81.03bn |
The company raised its Q4 revenue and EPS guidance in November. Revenues are now predicted to hit between $31 billion and $32 billion, above previous Wall Street expectations of $27.59 billion. EPS forecasts have been bumped up from $3.21 to a consensus of $3.53, based on Koyfin data.
Dell’s stock has struggled to keep pace with rampant earnings growth in recent years. EPS compound average growth is 30%+ over the past five years. It is projected to rise 30% again in fiscal 2026, and increase 16.5% in 2027, the current financial year.
Sustainable growth?
Yet investors have been reluctant to back the stock with questions raised about the sustainability of double-digit profits growth. These doubts have largely centred around weak PC and laptop sales. There is also a risk to margins amid hardware component cost pressures.
It means Dell’s valuation metrics have compressed substantially, with its PE falling from above 22 in May 2024 to less than half that now (10.5, on a rolling 12-monyth basis).
Wells Fargo models Dell’s AI server revenue at $9.4 billion for the January 2026 quarter. This rises to $25.1 billion in calendar 2025, $32.7 billion in 2026, and $37.5 billion in 2027. The firm forecast Q4 revenue of $31.525 billion and non‑GAAP EPS of $3.54, roughly in line with Street expectations.
Operating margins will be crucial to the stock’s near-term performance. These have bounced around the 3% -7% range in recent years and were 6.5% in fiscal 2025. Most recent data has operating margins pitched at 7.3% or so.
The big unknown is the impact steep memory chip pricing and its impact, versus significant data centre demand as hyperscale cloud operators throw billions of dollars at AI capacity hikes.
Yet a rolling 12-month PE of 10.5 has the stock at a discounted valuation versus its mid-teens long-run average.
Consensus price targets for Dell stock are around $158, about 30% above current levels, from a $101-$200 range. Dell will report Q4 and fiscal 2026 earnings after the bell on Thursday, 26 Feb.
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