For many investors, Dell Technologies (NYSE: DELL) has become somewhat of a divisive artificial intelligence (AI) stock. The company is certainly seeing a huge uptick in demand due to AI. Dell just reported its latest financial results, and AI orders came in at a record high. If the company meets its guidance next quarter, annual sales growth would come in at between 16% and 17%. Dell hasn’t achieved this level of growth in nearly four years.
Still, investors remain uncertain about Dell’s position in the AI ecosystem and whether it can emerge as a long-term winner. Dell’s latest results offer insight into how the stock should be evaluated going forward.
Dell Raises Guidance as AI Orders Soar
In its Q3 fiscal year 2026 (FY2026), Dell reported revenue of $27.01 billion for a growth rate of 10.8%. Note that Dell’s fiscal reporting period is one year ahead of the calendar period. This missed Wall Street estimates of $27.26 billion, which called for 11.8% growth. However, the firm’s adjusted earnings per share (EPS) of $2.59 was stronger than the $2.47 anticipated.
Offsetting the sales miss was the fact that Dell raised its full FY2026 guidance on both revenue and adjusted EPS. It now expects sales of $111.7 billion at the midpoint, versus $107 billion previously. It also expects adjusted EPS to come in at $9.92, an increase from $9.55. This shows that Dell’s revenue miss was due to timing, not worse-than-expected demand. Many sales expected in Q3 will shift to Q4, and the company saw enough additional demand next quarter to increase its full-year guidance.
Notably, Dell saw record AI server orders of $12.4 billion. The company’s AI server backlog rose to $18.4 billion, up from $11.7 billion in Q2 FY2026. This shows that Dell wasn’t able to keep up with strong customer demand. Overall, markets reacted favorably to Dell’s results, with shares rising 5.8% on Nov. 26. Shares have now delivered a nearly 17% return in 2025.
DELL’s AI Demand vs. Profitability: The Market’s Tug-of-War
Clearly, Dell is playing a significant role in AI, with demand for its servers leading to substantial improvements in its forecasts. However, one of the key concerns around this is how profitable AI sales will be. When Dell sells AI servers, it essentially takes components from other companies and combines them.
This includes advanced components like NVIDIA (NASDAQ: NVDA) processing chips and high-bandwidth memory (HBM). Dell must also buy NAND memory. Demand for all these products is high, with many concerned about NAND and HBM shortages. All this creates increased costs for Dell, which could pressure its AI server margins.
Importantly, Dell emphasized that its AI server margins moved back to their expected "mid-single-digit” range in Q3. One-time pressures caused this figure to fall below Dell’s target in Q2. It was good to see a return to expectations. However, mid-single-digit margins are still very thin, and long-term margin expansion is key to Dell's future.
One way Dell can achieve this is by broadening its customer base, a process that is already underway. Much of its demand today comes from large, low-margin, neo-cloud customers. Meanwhile, smaller enterprise customers are higher-margin. As the company gets more of these customers, its overall AI server margins should benefit. Dell notes that it has over 6,700 unique customers in its pipeline, supporting the idea that its customer base is becoming more diverse. It also hopes to sell higher-margin hardware, software, and services over time as it becomes more entrenched in its customers' AI infrastructure. Executing on this seems plausible.
Analysts Are Moderately Bullish on DELL
The MarketBeat tracked consensus price target on Dell sits at just over $161, implying 22% upside in shares. The average price target among analysts issuing updates after the company’s earnings release is nearly identical.
Clearly, analysts see a solid amount of upside potential in Dell. It's possible that price targets could rise higher if Dell shows that it can expand AI server margins.
It wouldn’t be overly surprising to see this take place long-term, but component pricing pressure is an important near-term risk. Overall, Dell’s long-term risk-reward profile looks moderately tilted to the upside.
However, investors will need to see AI server margins stabilize and eventually improve over time to continually validate this thesis.
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The article "Dell Just Hit a Record in AI Orders—But the Real Test Starts Now" first appeared on MarketBeat.
