Dell Earnings Preview: Can AI Server Orders and Backlog Sustain Growth? Wall Street Sees Up to $700

Dell previously provided Q2 guidance of revenue between $44 billion and $45 billion, with a midpoint of $44.5 billion, representing year-over-year growth of approximately 49%; midpoint GAAP diluted earnings per share of approximately $4.48, up 164% year-over-year; and midpoint non-GAAP diluted earnings per share of approximately $4.80, up 107% year-over-year. Revenue in the same period last year was $29.78 billion, and the 49% growth guidance implies that the company is accelerating its transition from a traditional hardware vendor to an AI infrastructure provider.

Current market consensus expectations are for revenue of $44.51 billion and non-GAAP EPS of around $4.91 to $4.92, higher than the company's midpoint guidance of $4.80.

In its first-quarter earnings report released in May, Dell raised its FY2027 revenue guidance to $165 billion to $169 billion, with the midpoint growth rate at approximately 47% year-over-year; full-year AI-optimized server revenue guidance was raised from about $50 billion to about $60 billion, up 144% year-over-year; and the midpoint of full-year non-GAAP EPS guidance was raised to $17.90.

The Q1 data itself was also exceptionally strong: total revenue was $43.8 billion, up 88% year-over-year; GAAP EPS was $5.24, up 282% year-over-year; non-GAAP EPS was $4.86, up 214% year-over-year. ISG revenue was $29.0 billion, up 181% year-over-year, of which AI server revenue reached $16.1 billion, surging 757% year-over-year; net new AI orders in a single quarter reached $24.4 billion, and the AI server backlog reached a record high of $51.3 billion at the end of the quarter.

With full-year guidance already revised upward significantly, what the market truly cares about is not whether Dell can "meet expectations," but whether management still has room for another upward revision. JPMorgan (JPM) analyst Joseph Cardoso maintained a "Buy" rating and a $565 price target in late August, believing there is still a high probability that Dell will raise its FY2027 revenue guidance again.

The primary metric closely watched by the market is whether AI server orders and backlog can continue to expand. Dell COO Jeff Clarke noted during the previous quarter's conference call that the AI order pipeline is several times the size of the backlog. Research firm 650 Group has raised its 2026 AI server market growth forecast from 64% to over 80%, providing external support for Dell to raise its guidance again.

The second key area is gross margin. In Q1, non-GAAP gross margin compressed from 21.6% to 18.1%, primarily dragged down structurally by the AI server product mix. Although ISG operating margin improved to 10.5% due to economies of scale, earnings quality could come under pressure if the revenue share of AI servers continues to rise while pricing fails to cover costs. Whether this earnings report can stabilize profit margins alongside accelerating revenue growth is key to determining if valuation can continue to be revised upward.

[Source: Stock Analysis]

According to data from Stock Analysis, as of press time, approximately 27 analysts give Dell a consensus "Buy" rating, with an average price target of around $510, implying an 11.84% upside from the current share price, with a target price range of $360 to $700.

Since August, several institutions have raised their price targets: Susquehanna maintained $700; Evercore ISI raised to $550; Wells Fargo raised to $545; Goldman Sachs (GS) raised to $510; UBS (UBS) raised to $455; Morgan Stanley (MS) raised to $434.

Susquehanna's $700 price target is the highest on Wall Street. Its core rationale is that the AI server business already accounts for over one-third of revenue, and the combination of economies of scale and high-margin services is sufficient to offset the dilution from lower hardware gross margins. The company can maintain stable free cash flow while expanding in AI and extending into the higher-margin inference market, with traditional server replacements providing additional growth to support FY2028.

UBS and Morgan Stanley maintained Neutral ratings because Dell's stock price has risen about 2.6 times year-to-date, and market pricing is already relatively full. If component price increases such as HBM erode gross margins more than expected, or if management chooses not to raise guidance further, the stock will face profit-taking pressure.

As of the close on August 28, Dell is up approximately 260% year-to-date, with its stock price at $456.24, down about 11% from its 52-week high of $514 set on August 13. Against the backdrop of these strong gains, if AI server orders and backlog continue to expand, the stock still has upside potential; however, if guidance upward revisions fall short of expectations or gross margin comes under further pressure, the previous gains may face profit-taking pressure.

[Source: TradingView]

The focus of Dell's earnings report lies in whether its results can once again beat market expectations. The growth rate of AI server orders, the size of accumulated backlog, and the trajectory of gross margin will together determine investors' judgment on the quality and sustainability of Dell's AI business growth. The earnings results and subsequent guidance on September 1 will be a key basis for assessing whether Dell can maintain its current valuation level.

This content was translated using AI and reviewed for clarity. It is for informational purposes only.