Boosted by a Double Dose of AI, Is Dell Heading for a Comeback?

In the previous article "Dell: AI Wave Rising, Can the Old Factory Make a Comeback?", we mainly discussed Dell's historical ups and downs, as well as its current competitiveness in the server market. In this article, we will focus on the investment value perspective, discussing the following two questions:

1) Transitioning from PC to AI PC, what is the potential?

2) With AI servers and AI PCs, what is Dell's investment value?

For the next part about $Dell Tech(DELL.US), directly refer to the specific text by Dolphin Research:

I. New Opportunities for the Traditional Base: Transitioning from PC to AI PC

Dell's client business covers four parts: laptops and desktops, workstations, monitors and peripherals, and software and security solutions, with laptops and desktops being the absolute mainstay of the CSG business.

Unlike brands such as Lenovo and HP, Dell's largest customers come from enterprises, with current commercial customer revenue accounting for 88% of the entire client business.

As Dell strengthens the linkage of enterprise-level ecosystems, the CSG business, mainly focused on computer monitors, can share ISG (Infrastructure Solutions Group) customer resources and provide a "PC+Server+Storage" one-stop solution. The proportion of enterprise customers is showing a continuous upward trend, while the proportion of C-end customers is gradually weakening, having dropped to around 10%.

1.1 PC Market Structure

In the current global PC market, Dell's market share in shipments is about 15%, ranking third. Although it is no longer the global leader it once was, the company remains in the top tier. After shifting its strategic focus to enterprise-level information services, the company primarily targets enterprise customers in the PC market. Thanks to long-term cooperation with enterprise customers, Dell's PC business is less affected by changes in the C-end market, thus maintaining relatively stable market share.

Since nearly 60% of Dell's CSG business revenue comes from the Americas, with the United States being the largest market region, the company's position in the U.S. market more directly reflects the specific performance of its CSG business.

According to U.S. PC market data, HP and Dell have long been in the top two, together accounting for nearly half of the market share. Since the end of 2020, when Apple began equipping its Macs with self-developed M chips, Apple's market share in the U.S. has shown a clear upward trend, but Dell still holds more than 20% of the share.

In 2024, Dell's shipments in the U.S. PC market are about 15.8 million units, accounting for about 40% of the total shipments, but contributing nearly 60% of the company's client business revenue, indicating that Dell's product average price in the U.S. market is relatively high.

1.2 Market Competitiveness of Dell's PC Products

Since Dell is in the top tier of the PC market, is the company's PC product competitiveness really that strong? In the PC market, flagship products from various brands are usually divided into business and gaming categories. Apple's iOS system is unique, while other brands are part of the Windows camp, making horizontal comparisons easier:

a) Performance Configuration: Dell, ASUS > Lenovo, HP > Acer

b) Price for the Same Configuration: Dell > ASUS (gaming laptops) > Lenovo > HP > Acer

Based on the above information, Dell's PC products still have advantages in performance configuration, while the brand's price for the same configuration remains relatively high. From the user profile perspective, Dell's XPS series products are suitable for corporate executives and creative professionals, while the previously acquired Alienware series is more suitable for hardcore gamers who are not short on money.

Driven by the relatively high average price of Dell computers, Dell's PC market shipments in 2024 are only two-thirds of Lenovo's, but the company's overall client business revenue last year was close to Lenovo's $50 billion.

1.3 Dell's Layout in AI PCs

AI PCs refer to desktops and laptops equipped with chips or modules (such as NPUs) specifically designed to handle AI workloads. As market attention to AI PCs increases, core players (Dell, Lenovo, and HP) have successively entered the AI PC market.

While adding NPUs to PC products, they are also adjusting their AI positioning. Currently, the three companies have successively released new PCs equipped with Core Ultra or AMD Ryzen 9 (NPU computing power 10-60 TOPS).

Dell has disrupted its original PC product system, referencing Apple's naming method for iPhones, and restructured into three categories: "Dell (daily life), Dell Pro (professional office), and Dell Pro Max (extreme performance and AI development)".

Additionally, Dell has established AI collaborations with NVIDIA, Qualcomm, AMD, and Intel. Dolphin Research anticipates that the future DELL series (mid to low-end) will mainly use Qualcomm and Intel products, while Dell Pro and Dell Pro Max (mid to high-end) will adopt AMD and Intel products.

The three companies in the top tier of the PC market simultaneously made efforts in the first half of this year, clearly indicating the trend of PCs moving towards AI PCs. Specifically, Dell focuses more on the three-layer computing architecture and enterprise-level deep integration (B-end); Lenovo focuses on end-side large models and intelligent systems (integrating with applications like Ernie Bot and WPS); HP adopts a zero-threshold AI inclusive strategy, such as the Hui Xiaowei AI (C-end).

The emergence of Deepseek and others has shown the market the potential in the AI field. Some current computers are already equipped with NPUs, but due to the lack of more innovation and popularization in AI applications, AI PCs have not yet demonstrated significant advantages.

This is another "hardware-software" mutual promotion process. As core manufacturers in the PC market fully transition, the penetration rate of AI PCs on the hardware side will significantly increase. The promotion on the hardware side can drive innovation in software applications in the market. When more innovations appear on the application side and can be transformed into productivity, it will bring more demand for hardware (such as AI PCs) in the market.

1.4 Is the Boost from AI PCs to the PC Market Significant?

Although AI PC products are gradually being launched, due to the lack of continuous innovation on the application side, current consumers do not have a clear preference for AI PCs. As core PC players fully transition to the AI PC market, Dolphin Research believes that the current stage of AI PC penetration rate increase is mainly driven by the supply side.

The growth in AI PC shipments will indeed contribute to the overall recovery of the PC market. 2024 is considered the first year of AI PCs, and the global PC market growth rate has also achieved a rebound.

On the other hand, since the PC market is already a stable market with an annual shipment of 250-300 million units, in the absence of significant market demand stimulated by AI applications, the growth of AI PCs can only drive the recovery of the PC market but will not lead to a rapid rebound in market growth rate.

In other words, "if AI PCs are only driven by the supply side, this can be understood as an overall product iteration upgrade in the PC market."

Considering the progress of AI PCs and market expectations, Dolphin Research estimates that global AI PC shipments are expected to reach 230 million units by 2029, with an AI PC penetration rate expected to reach 78%. Driven by AI PCs, the PC market will continue to show a warming trend, with annual shipments returning to 300 million units.

Although AI PCs do not significantly drive the overall PC market shipments, the overall product iteration upgrade undoubtedly provides brands like Dell with an opportunity to re-divide market share, thereby achieving excess growth in the PC market.

II. AI Empowerment, Dual Growth of Servers and PCs?

With the dual drive of "AI servers + AI PCs", can Dell usher in "another comeback"? In Dell's performance estimation, the most critical aspect is the expectations for servers and PCs. The former is a key part of the ISG business (accounting for 45% of revenue), while the latter is the foundation of the CSG business (accounting for 53% of revenue).

2.1 Server Segment

Before the company's large-scale layout of AI servers in 2023, the annual revenue of traditional servers basically remained at around $15 billion. As the market shifts to AI demand, cloud service providers' capital expenditures are further inclined towards AI servers. If the company sticks to traditional servers, it will face increased competition and business contraction pressure, while AI servers are also the company's "must-do" breakthrough method.

In estimating the performance of Dell's server business, it is mainly divided into traditional servers and AI servers:

a) Traditional Servers: Core assumptions ① In terms of quantity, it is assumed that traditional server shipments remain relatively stable, maintaining annual sales of 1.3-1.4 million units; ② In terms of price, the average price of the company's traditional servers maintains low single-digit growth each year.

Based on the above assumptions, Dolphin Research expects the company's traditional server revenue to grow steadily and slightly, reaching $16 billion by 2029, with the company's market share in traditional servers expected to increase from 26% to around 29%.

b) AI Servers

① In terms of quantity: Since the company's customers are mainly manufacturers in the second tier, lacking large-scale procurement from top manufacturers, the company's overall shipments in the market will not be many. Considering the expected growth rate of the AI server market, Dolphin Research expects the company's annual AI server sales to reach 130,000 units by 2029;

② In terms of price: While providing high-quality server products, the company's prices are relatively high compared to competitors. Dolphin Research estimates that the current average price of AI servers in the market is around $150,000, while Dell's AI servers average over $200,000. With the increase in shipments of GB series products, the average price of Dell's AI servers is expected to continue rising this year. Assuming the average price of the company's AI servers starts to decline next year, it will still remain above $200,000.

Based on the above assumptions, Dolphin Research expects Dell's AI server revenue to surpass traditional servers by 2025, growing to $26 billion by 2029, with a compound growth rate of 21.8% from 2024 to 2029. Due to large cloud service providers adopting ODM direct methods in the AI server field, the company's market share in AI servers will not be large, with Dell expected to maintain around 5% market share in the AI server market.

Overall, based on a) and b), Dell's AI server revenue is expected to grow to $42.5 billion by 2029, with a compound growth rate of 11.4% from 2024 to 2029, accounting for about 7% of the overall server market, with market share falling by one percentage point compared to the current level, mainly due to the expansion of the ODM market share in the AI server field.

2.2 PC Segment

In the absence of large-scale AI application explosions, AI PCs have not shown significant advantages over ordinary PCs. Current AI PCs are mainly driven by supply-side iterative upgrades, rather than demand-side. In this context, it is assumed that the PC market will show single-digit warming over the next five years.

Expectations for Dell's PC business are mainly viewed from both quantity and price:

① In terms of quantity: Since AI PCs develop faster in office, business, and other enterprise-end scenarios, and Dell itself primarily serves enterprise customers, Dell's overall PC shipment growth rate will be slightly better than the overall market. Considering the company's and industry conditions, Dolphin Research expects Dell's PC shipments to grow to about 45 million units by 2029, with market share remaining at around 15%.

② In terms of price: Since AI PCs are generally priced higher than traditional PCs, in the first two years of AI PC penetration rate increase, the overall average price of the company's PC products will be structurally driven. As AI PC penetration rate reaches 50%, the market may experience intensified competition or price wars, and Dolphin Research expects the average price of the company's PC products to decline after 2027.

Combining ①+②, Dolphin Research expects Dell's CSG business to grow to about $59 billion by 2029, with a compound growth rate of 4% from 2024 to 2029.

2.3 Overall Performance Expectations for Dell

Based on the above information about Dell's server and PC business, Dolphin Research expects Dell's total revenue to grow to $127.9 billion by the 2030 fiscal year (approximately corresponding to the calendar year 2029), with a compound growth rate of 6% from the 2025 fiscal year to the 2030 fiscal year.

Driven by AI servers and AI PCs, the company's ISG business (Infrastructure Solutions Group) and CSG business (Client Solutions Group) will both maintain growth. With the compound growth rate of the server business being higher than that of the PC business, the proportion of Dell's ISG business will increase, and the overall revenue ratio of the two businesses will remain around 1:1.

Assuming hardware gross margin and service gross margin remain relatively stable, with revenue growth, scale effects will dilute the R&D expense ratio and sales management expense ratio, Dell's overall operating expense ratio (R&D expense ratio + sales management expense ratio) is expected to decrease from the current 14-15% to around 12%.

Based on the above assumptions, Dolphin Research expects Dell's core operating profit to grow to about $12.5 billion by the 2030 fiscal year (approximately corresponding to the calendar year 2029), with a compound growth rate of 15% from the 2025 fiscal year to the 2030 fiscal year. Benefiting from the decline in operating expense ratio, Dell's core operating profit margin is expected to increase from 6.5% to around 9.8%.

[Core Operating Profit = Gross Profit - R&D Expenses - Sales Management Expenses]

III. Thoughts on Dell's Investment Value

Judging Dell's investment value from both PE and DCF perspectives:

a) PE Valuation:

Based on the above performance expectations for Dell, assuming the company's tax rate is 15.9%, the company's post-tax core operating profit for the 2026 fiscal year (approximately corresponding to the calendar year 2025) is $7.15 billion, with a year-on-year growth rate of over 30%. In the 2026 fiscal year, benefiting from the shipment of GB series AI servers, the company's performance growth accelerates. After the 2026 fiscal year, Dolphin Research expects the compound growth rate of the company's core profit to fall to around 10%.

When considering valuation, because Dell has a significant amount of interest-bearing debt, interest expenses of over $1 billion should be deducted from the profit side each year.

After deducting interest expenses (about $1.3 billion), the company's profit for the 2026 fiscal year is approximately $5.8 billion. Considering the company's current market value of $86.8 billion, it roughly corresponds to a PE of 15 times for the 2026 fiscal year, which is below the company's historical valuation midpoint, with the midpoint level being around 17-18 times, corresponding to a premium space of nearly 15-20%.

b) DCF Valuation:

PE valuation more reflects the relative valuation situation from a short-term perspective, while from the absolute valuation perspective of DCF. Assuming WACC=10.6% and a perpetual growth rate of 2.5%, the DCF calculated stock price for Dell Technologies DELL is $163, roughly corresponding to $110 billion, compared to the current stock price ($128), there is still a 27% upside potential, with relatively high certainty.

c) Summary

From both (a+b) perspectives, Dell's current stock price is not expensive. The company's current PE is below the historical valuation range midpoint, and the DCF perspective also provides nearly 25% space.

The company added $12.1 billion in AI server orders in the first quarter, basically establishing the certainty trend of high growth in AI server business this year.

Although the company maintains its full-year AI server revenue guidance of $15 billion, based on the current explosive order pace, Dell is expected to further exceed expectations in the second half of the year.

Considering Dell's current performance in continuously "winning orders" in the AI field, the company's market value still has the opportunity to evolve towards a relatively optimistic direction of $110 billion.

Dolphin Research's historical articles on Dell and AI:

July 9, 2025, Dell in-depth "Dell: AI Wave Rising, Can the Old Factory Make a Comeback?"

May 29, 2025, NVIDIA conference call "NVIDIA (Minutes): Blackwell Contributes 70% of Data Center Computing Revenue"

May 29, 2025, NVIDIA earnings review "NVIDIA: Don't Doubt, Still the Number One Stock in the Universe!"

Risk Disclosure and Statement of this Article: Dolphin Research Disclaimer and General Disclosure