Dell gains 1% as $60 billion AI-server goal faces 10% swing

Dell Technologies shares gained 0.96% to $460.64 as of 10:50 EDT, with options pricing a roughly 10% move after Tuesday's fiscal Q2 earnings report.

"There is still a high probability Dell will raise its FY2027 revenue guidance again," Joseph Cardoso, an analyst at JPMorgan, said, maintaining a Buy rating and $565 price target.

Visible Alpha projects revenue of $45.19 billion, up about 52% from a year earlier, with adjusted EPS of $4.91, more than double last year's figure. Dell's fiscal Q1 revenue surged 88% to $43.84 billion, with adjusted EPS of $4.86 beating the $2.94 consensus estimate.

The $60 billion AI-server target represents 36% of the $167 billion fiscal-2027 revenue midpoint, exposing the company to accelerator costs and concentrated customer orders. Analyst targets range from $360 to $700, with a consensus of $510.48, while the options range spans $414.58 to $506.70.

AI servers sit at the core of the assessment. In May, Dell raised its annual goal to about $60 billion from roughly $50 billion after Q1 AI server revenue hit $16.1 billion, surging 757% year over year. Net new AI orders reached $24.4 billion in the quarter, and the AI server backlog climbed to a record $51.3 billion.

Supply, not demand, has become the primary constraint on converting orders into recognized revenue. Component shortages now span memory, CPUs, optical parts, and hard drives. BofA Securities raised its price target to $505 from $500, modeling $65 billion in AI server revenue for fiscal 2027 versus Dell's $60 billion guidance.

Gross margin remains the key pressure point. Non-GAAP gross margin compressed from 21.6% to 18.1% in Q1, dragged down by the AI server product mix, though ISG operating margin improved to 10.5% on economies of scale. Whether this report can stabilize margins alongside accelerating revenue growth will determine if the valuation can be revised upward.

Peer valuations send conflicting signals. Hewlett Packard Enterprise trades at 48 times earnings, while HP Inc. trades near 12 times. Dell's trailing P/E stands at 36.7 times, with a market value of $302.2 billion.

The guidance update, not the reported quarter, will drive the move. Investors require stronger profit projections to counteract hardware-mix pressures and already high expectations after a year-to-date gain of about 269%. The results call is set for September 1 at 3:30 p.m. CDT.

The report will test the durability of the AI infrastructure trade, with Oracle and Zscaler also reporting this week. Strong results from Dell's AI server business could reinforce bullish semiconductor sentiment, while disappointments could trigger sell-offs across the AI-related tech complex. Investors will watch the earnings call for updated segment margins and any further guidance revision.

This article is for informational purposes only and does not constitute investment advice.