Is DELL's AI Server Strategy the Key to ISG Revenue Acceleration?

Dell Technologies DELL is benefiting from the strong demand for AI servers, which are driven by ongoing digital transformation and heightened interest in generative AI applications. Its PowerEdge XE9680L AI-optimized server is very much in demand. Strong enterprise demand for AI-optimized servers is aiding Dell.

The surge in AI server demand is clearly reflected in the company’s financial performance. In the first quarter of fiscal 2026, Infrastructure Solutions Group (ISG) revenues increased 12% year over year to $10.31 billion. The upside can be attributed to servers and networking revenues of $6.32 billion, which grew 16% year over year, with demand strength across AI and traditional servers. 

In the fiscal first quarter of 2026, Dell Technologies’ AI-optimized server momentum saw an increase of $12.1 billion in orders. The flagship PowerEdge XE9680 experienced strong demand, contributing to the momentum in the AI space.

Dell PowerEdge supports the NVIDIA Blackwell Ultra platform, including the upcoming NVIDIA HGX B300 NVL16, NVIDIA GB300 NVL72 and NVIDIA RTX PRO 6000 Blackwell Server Edition.  The new Dell PowerEdge XE8712 server features the GB200 NVL4 platform and supports up to 144 NVIDIA B200 GPUs per Dell IR7000 rack. These liquid-cooled systems are tailored for AI model training and complex HPC simulations.

The company shipped $1.8 billion worth of AI servers in the fiscal first quarter, and the AI server backlog remained healthy at $14.4 billion.

DELL Faces Stiff Competition From HPE and SMCI

DELL is facing stiff competition in the server space against the likes of Hewlett Packard HPE and Super Micro Computer SMCI.

Hewlett Packard is benefiting from robust demand for its AI-optimized servers, leading to significant revenue growth in its server segment. In the second quarter of fiscal 2025, Hewlett Packard server business grew 6% year over year, reaching $4.06 billion, mainly due to strong demand for its AI servers as well as growth in server systems. 

Super Micro Computer recently announced new air-cooled and liquid-cooled GPU solutions featuring AMD Instinct MI350 series GPUs, optimized for AI, cloud, and HPC workloads. These high-performance servers, built on Super Micro Computer's H14 platform with AMD EPYC 9005 CPUs, offer enhanced scalability, energy efficiency, and up to 288GB HBM3e per GPU.

DELL’s Share Price Performance, Valuation and Estimates

DELL’s shares have lost 4.9% year to date, underperforming the broader Zacks Computer & Technology sector’s return of 1.2%.

DELL Stock Performance

DELL’s stock is trading cheap, with a forward 12-month Price/Sales of 0.72X compared with the Computer & Technology sector’s 6.33X. DELL has a Value Score of A.

Price/Sales (F12M)

The Zacks Consensus Estimate for second-quarter fiscal 2026 earnings is pegged at $2.26 per share, which has increased 11.5% in the past 30 days. This indicates a year-over-year increase of 19.58%.

Dell Technologies Inc. Price and Consensus

Dell Technologies Inc. price-consensus-chart | Dell Technologies Inc. Quote

 The consensus mark for 2025 earnings is pegged at $9.43 per share, which increased 6.91% in the past 30 days. This suggests 15.85% year-over-year growth.

DELL currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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