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Dell Technologies (DELL), valued at $69 billion by market capitalization, is among the most prominent hardware companies in the world. In recent years, it has experienced strong demand in its artificial intelligence business. However, its steady revenue growth and expanding profit margins have failed to translate to capital gains for shareholders in 2024, as the stock is down roughly 45% from its 52-week high. Despite the ongoing pullback, Dell has returned over 700% to investors since it went public in August 2016.
Dell competes with Super Micro Computer (SMCI) in the AI server space. The company’s AI server revenue stood at $10 billion in fiscal 2025 and is forecast to rise to at least $15 billion in its fiscal 2026, with a $9 billion backlog already in place.
During a Morgan Stanley conference, Dell forecast revenue to grow 8% this year, significantly outpacing its long-term framework of 3%-4% growth, with earnings per share projected to increase by 14%. Dell’s Infrastructure Solutions Group (ISG) reported record profitability in Q4 with an operating margin of 18.1%, up from just 8% last year.
While Dell's AI server business is primarily driven by Tier 2 hyperscalers today, enterprise adoption remains in the “very early innings,” with over 2,000 customers beginning to test AI infrastructure but not yet deploying at scale.
Moreover, Dell is driving operational efficiencies through its “Modern Dell” initiative. The company is focused on automating processes across business verticals, which will allow it to improve its operating margin to 6.5% in 2025, up from 4.7% in 2022.
Dell remains committed to returning at least 80% of free cash flow to shareholders. It recently raised its dividend by 18% and authorized a new $10 billion share repurchase program.
Is Dell Stock a Good Investment Right Now?
During its fiscal Q4 earnings call, Dell Technologies raised its outlook for fiscal 2026. It expects revenue to grow by 8% year-over-year, while earnings growth might be higher at 14% as artificial intelligence continues to drive demand within its server business.
In fiscal Q4, Dell reported revenue of $23.9 billion, up 7% year-over-year. Its Infrastructure Solutions Group (ISG) delivered a standout performance as AI-optimized server revenue surged.
Server and networking revenue reached a Q4 record of $6.6 billion, up 37%, fueled by strong demand for AI-optimized and traditional servers. Storage revenue grew 5% to $4.7 billion for the second consecutive quarter of growth, with Dell's PowerStore midrange product achieving record demand.
The PC business showed early signs of recovery, with commercial revenue up 5% and strength in the small and medium business segment, which typically signals broader market improvement. Dell expects PC demand to accelerate in the second half as Windows 10 approaches end-of-life in October and AI PCs gain wider adoption.
Is Dell Stock Undervalued?
Wall Street expects Dell to increase adjusted earnings per share from $8.14 in fiscal 2025 to $10.52 in 2027. Comparatively, free cash flow might improve from $1.95 billion in 2025 to $7.6 billion in 2027. So, priced at 9.5x forward earnings and 9x forward FCF, Dell stock is cheap given these growth estimates.
Out of the 21 analysts covering Dell stock, 16 recommend “Strong Buy,” two recommend “Moderate Buy,” and three recommend “Hold.” The average target price for Dell is $137.64, roughly 40% above the current trading price.
