Dell Technologies (DELL) is set to report its fiscal first-quarter results soon, and I believe this could be an important test for one of the market’s biggest artificial intelligence (AI) infrastructure re-ratings this year.
Claim 55% Off TipRanks
200% short exposure to NVDA with NVDSDell shares have performed strongly in 2026 so far, and that move speaks for itself. Since the company reported its Q4 2026 results in February, the stock has been re-rated, with investors starting to view Dell as more than just a low-margin reseller of AI servers. Instead, the market appears to be increasingly treating Dell as a real infrastructure player in the AI buildout. A massive backlog, accelerating revenue growth, and growing evidence of operating leverage within the Infrastructure Solutions Group (ISG) all support that view.
That is why I view the upcoming Q1 report as especially important. The question is not simply whether Dell can continue to grow AI server revenue. That is already largely expected. The real question is whether the company can convert that AI demand into real earnings power while keeping ISG margins resilient. If Dell can do that, I believe the stock’s AI-driven re-rating may not be over yet, supporting my Buy view ahead of earnings.
Dell’s Infrastructure Business Is Taking Over
Dell’s business today is basically divided into two parts. On one side is the Client Solutions Group (CSG), the consumer-facing division that sells personal computers (PCs) and related peripherals. On the other side is the Infrastructure Solutions Group (ISG), which includes servers, networking, and storage. CSG is the lower-margin side of the business and has been struggling, with revenue growing only in the low single digits and operating income shrinking in recent quarters, while ISG is blossoming.
As the AI race has moved into a stage where infrastructure players are becoming some of the biggest beneficiaries, Dell has felt those tailwinds firsthand. In the latest quarter, for example, ISG revenue grew by a whopping 73% year-over-year to $19.6 billion. Within ISG, AI-optimized servers accounted for roughly 46% of revenue, Traditional Servers & Networking represented about 30%, and Storage made up the remaining 24%.
The Real Question Was Always Margins
However, the main issue the market had with Dell’s ISG story was never revenue growth. It was margins.
When Dell sells a large number of AI servers powered by Nvidia’s (NVDA) graphics processing units (GPUs), revenue can explode, but margins can come under pressure because GPUs and memory typically carry lower margins for Dell. That said, not all of ISG’s margin volatility should be blamed on AI server mix, since Dell also usually sees a seasonal step-down from Q4 to Q1.
Still, the margin swing was meaningful, with ISG’s operating margin falling from 18.1% in Q4 FY25 to 8.8% in Q2 FY26 before recovering to 14.8% in Q4 FY26. That recovery suggested the company is beginning to benefit from operating leverage as the business scales, while stronger contributions from storage and traditional servers are helping create a healthier mix.
Why the Market Re-Rated Dell
Arguably, what really drives Dell stock today is not so much what the company delivered last quarter, but what investors expect it to deliver over the next several quarters. That has become an increasingly important part of the investment thesis as the stock has been re-rated around its AI story.
At 18.7x forward earnings, Dell now trades 68% above its five-year historical average of 11.1x. That was the valuation the market typically assigned when Dell was viewed as a mature business with modest growth and relatively tight margins.
That helps to explain why Dell’s FY27 guidance was so important to the stock’s rally this year. The company exited FY26 with $64 billion in AI server orders, delivered more than $25 billion, and entered FY27 with a $43 billion backlog. On top of that, management guided for FY27 revenue of $140 billion at the midpoint, representing 23% year-over-year growth, and approximately $50 billion in AI-optimized server revenue, up 103%.
Taken together, and combined with the recent resilience in ISG margins, the market is now looking at Dell through three distinctly bullish lenses: a massive AI backlog; very strong revenue growth; and clear evidence that ISG can still generate healthy margins.
What Really Matters in the Upcoming Quarter
With Dell’s Q1 2027 just around the corner, consensus expects revenue to grow 49% year-over-year to $34.9 billion, while earnings per share (EPS) is projected to increase 86% to $2.88.
To some extent, these very strong top- and bottom-line growth figures are being helped by an easy comparison base. After all, in Q1 FY26, Dell reported revenue of about $23.4 billion, with AI server revenue still only beginning to ramp. However, the growth story is not just about easier comps. More importantly, Dell entered FY27 with a $43 billion AI server backlog, which provides a meaningful visibility bridge for the company’s AI thesis.
Perhaps the best way to evaluate Dell ahead of earnings is not to focus solely on the headline numbers. The more important question is whether the AI server story is translating into real earnings power rather than simply low-margin revenue. If Dell is targeting approximately $50 billion in AI-optimized server revenue for FY27, the market will likely want to see a very strong first quarter. AI-optimized server revenue in the $12–$13 billion range would help support confidence in that annual run rate.
Of course, ISG operating margins will be just as important. This quarter will need to show that margins do not fall to the high single-digit range seen earlier last year. Still, a low-teens margin, given seasonality, would be a constructive outcome if AI server revenue remains strong and management points to better operating leverage as FY27 progresses. Ultimately, the key will be proving that Dell can prevent AI revenue from becoming little more than low-margin pass-through growth.
Is DELL a Buy, According to Wall Street Analysts?
The consensus view on DELL among Wall Street analysts is a Moderate Buy. Over the past three months, 17 ratings have been issued, including 12 Buys, four Holds, and just one Sell. That said, the average price target of $218.87 implies roughly 10% downside from current levels.
AI Tailwinds Could Continue Supporting the Stock
I view Dell as a Buy ahead of its Q1 earnings release, although I do not see this as a low-risk setup. After this year’s strong rally, much of the good news appears to be already reflected in the stock, which is now trading at a significant premium to its historical average. Nevertheless, I believe AI tailwinds should remain strong throughout FY27.
If Dell can continue converting its massive AI server backlog into revenue while keeping ISG operating margins in the low-to-mid teens, the market may continue to view the company as a business with real earnings power. In other words, Dell would be seen as more than just a seller of low-margin AI hardware. In my view, that would be enough to justify a more demanding valuation multiple for the stock.