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Shares of Dell Technologies (DELL) have experienced impressive growth, significantly outperforming the broader market over the past year. The stock has surged over 88%, well ahead of the S&P 500 Index’s ($SPX) 35.9% gain, driven mainly by the company’s growing share in the thriving artificial intelligence (AI) server market.
While DELL stock has outperformed the broader markets, the key question is whether this momentum will persist. Let’s delve into the factors supporting Dell’s growth, and assess the sustainability of its stock performance.
Strong Quarterly Numbers and AI Momentum
Dell continues to post solid quarterly financials, which supports its share price. During the last reported quarter (Q2), Dell posted robust results, with revenue reaching $25 billion, marking a 9% year-over-year increase. What stood out is the company’s servers and networking business, which set a new record, driven by increasing demand for AI infrastructure.
The Infrastructure Solutions Group (ISG) saw strong growth in AI server orders and shipments, bolstered by its ability to deliver both air and liquid-cooled AI servers optimized for maximum performance. This offering has proven highly appealing to customers, especially Tier-2 cloud service providers (CSPs), who were responsible for multi-billion dollar orders during the quarter.
Dell is well-positioned to capitalize on the growing AI market thanks to its AI servers, storage solutions, and strategic partnerships. Moreover, as AI adoption accelerates, more enterprise customers will likely turn to Dell for their AI requirements, creating a sizable growth opportunity for the company.
AI Server Demand and Strategic Expansion
Dell’s AI server pipeline is rapidly expanding, driven by strong demand from Tier-2 CSPs and enterprise customers. The company’s AI server backlog stood at $3.8 billion at the end of Q2, with significant potential for future orders as the adoption of AI infrastructure grows.
Dell has optimized its sales approach to better target AI opportunities across different customer segments and geographies. Additionally, the company has bolstered its engineering capabilities, particularly in data center networking and design, to support its growing AI business.
While Dell’s AI business expands, traditional server demand continues to rise, with strong sales reported for the third consecutive quarter. The company’s core storage solutions saw double-digit growth in Q2, signaling healthy overall demand for its products.
Client Solutions and Upcoming PC Refresh Cycle
Dell’s Client Solutions Group (CSG) also witnessed modest commercial PC demand growth in Q2. Further, the segment is likely to see improved sales in the coming quarters. The company is well-positioned to benefit from the upcoming PC refresh cycle as the installed base of PCs ages and Windows 10 approaches its end-of-life in 2025.
Furthermore, advancements in AI-driven architectures and applications should spur additional demand for Dell’s high-end consumer and gaming PCs.
Expanding AI Opportunity
Dell is still in the early stages of capitalizing on the massive AI opportunity. The company is targeting a $174 billion total addressable market (TAM) for AI hardware and services, which is expected to grow at a CAGR of 22% in the coming years. With its comprehensive AI portfolio and optimized sales strategy, Dell is well-positioned to secure a significant share of this market.
In addition to AI, the company is well-placed to benefit from the upcoming IT hardware recovery cycle, which should further drive growth in its core business.
Outlook and Financial Expectations
Leadership is optimistic about the company’s growth prospects. For fiscal 2025, Dell expects revenue to range between $95.5 billion and $98.5 billion, with the midpoint representing a 10% year-over-year increase. The company anticipates strong growth in its ISG segment, mainly driven by AI.
Despite facing some near-term margin pressure from higher input costs and a shift toward higher-priced AI-optimized servers, Dell is focused on driving operational efficiencies. For the year, it plans to reduce operating expenses by a low single-digit percentage.
Conclusion: Is Dell Stock Set for Continued Growth?
Dell Technologies is at the forefront of two major growth trends: the AI revolution and the coming IT hardware refresh cycle. The company’s strong performance in Q2, coupled with its solid AI infrastructure offering, positions it well to capitalize on these opportunities. With its growing AI pipeline, expanding enterprise and sovereign AI customer base, and ongoing demand for traditional server solutions, Dell has multiple avenues for growth.
Wall Street’s consensus rating of “Strong Buy” reflects optimism about Dell’s prospects. While some short-term challenges, like margin pressure, may arise, the company's long-term outlook remains favorable.
