Dell Technologies: AI Server 'Frenzied Orders', Just a 'Flash in the Pan'?

Dell Technologies (DELL.N) released its Q2 FY2026 earnings report (ending July 2025) in the early hours of August 29th, Beijing time, after the U.S. stock market closed:

1. Core Performance: This quarter's revenue was $29.7 billion, up 19% year-on-year, better than market expectations ($29.1 billion). The company's revenue growth of nearly $5 billion year-on-year this quarter was primarily driven by contributions from AI server shipments. The company's gross margin this quarter was 18.3%, down 2.9 percentage points year-on-year, below market expectations (19.4%). Compared to service revenue, AI servers and other products have relatively lower gross margins, which structurally lowered the overall gross margin as revenue from AI servers increased.

2. ISG Business (Infrastructure Solutions):$Dell Tech(DELL.US) This quarter's revenue was $16.8 billion, up $6.5 billion quarter-on-quarter, better than market expectations ($15.9 billion). The quarter-on-quarter increase was entirely driven by AI servers.

① AI Server Segment: Due to the company's backlog orders of $14.4 billion last quarter, the market generally raised this quarter's AI revenue expectations to $7 billion, but the company delivered $8.2 billion, still better than expected;

② Other Segments: Apart from AI servers, other ISG businesses contributed approximately $4.7 billion in revenue, up 5% quarter-on-quarter. Traditional server business saw a seasonal increase, while storage business declined quarter-on-quarter.

3. CSG Business (Client Solutions): This quarter's revenue was $12.5 billion, roughly flat year-on-year, below market expectations ($12.8 billion). In the CSG business, it was mainly affected by demand related to PC personal computers. According to PC market data, Dell's shipment volume slightly declined year-on-year this quarter, still ranking third in the global market.

Specifically: Dell's client business remains primarily focused on commercial customers. This quarter's commercial customer revenue was $10.7 billion, up 2% year-on-year; while revenue from personal consumer end was only $1.7 billion, down 7% year-on-year.

4. Dell's Guidance:

① Quarterly Guidance: Next quarter's revenue is expected to be $26.5-27.5 billion, slightly better than market expectations of $26.5 billion. The revenue increase in the second quarter was mainly driven by the concentrated shipment of a large backlog of AI server orders. Currently, the company's backlog orders have significantly decreased, and next quarter's revenue is expected to decline. Next quarter's EPS (GAAP) is expected to be $2.1, up quarter-on-quarter, mainly driven by a rebound in gross margin.

② Full-Year Guidance: The company also provided full-year guidance of $105-109 billion, up $4 billion from previous guidance. This suggests that the company expects second-half revenue to be in the range of $51.8-55.8 billion, with fourth-quarter revenue around $25.8-29.8 billion. Compared to last year's full-year revenue, since other businesses remain stable, the revenue increase is primarily driven by contributions from AI servers.

Dolphin Research's Overall View: "Fleeting" concentrated delivery, sustainability of growth needs observation

Dell's revenue performance this quarter was decent, but the decline in gross margin directly suppressed profit release. The revenue increase this quarter was primarily driven by AI servers, but it also led to a decline in the company's overall gross margin.

Dell's guidance performance was decent, but not "eye-catching." The company expects next quarter's revenue to be $26.5-27.5 billion, slightly better than market expectations ($26.5 billion). Since the company's traditional business is relatively stable, AI servers are the biggest impact item on the company's revenue. According to the guidance, after the intensive shipment in the second quarter, the performance of AI servers in the third and fourth quarters will decline.

Since Dell's CSG business is primarily focused on PC personal computers, and AI PCs have not yet seen explosive growth, the market's focus on the company is the performance of AI servers in the ISG business.

① AI Server Performance This Quarter: Due to the backlog orders of $14.4 billion last quarter, which increased by over $10 billion quarter-on-quarter, the market had raised expectations for this quarter's AI server revenue to $7 billion before the earnings report. The company delivered $8.2 billion, still better than expected.

Specifically, Dolphin Research believes the revenue growth of AI servers this quarter came from a significant increase in shipment volume (concentrated delivery), while the average shipment price fluctuated little quarter-on-quarter.

② AI Server Expectations for Next Quarter: After concentrated delivery in the second quarter, the backlog orders for AI servers this quarter decreased to $11.7 billion, but still remain at a high level. Based on the current backlog orders, Dolphin Research expects next quarter's AI server revenue to be nearly $6 billion.

After this earnings report, the company raised its full-year AI server revenue target from $15 billion to $20 billion, Dolphin Research estimates fourth-quarter AI server revenue will continue to decline to $4.5 billion.

Dell's "explosive" AI server revenue this quarter seems more like a one-time "concentrated delivery" action, and subsequent quarters will see a decline in AI backlog orders and revenue. Even though this quarter's AI single-quarter revenue exceeded market expectations (+$1 billion), the continued decline in related revenue in the following two quarters will still affect market confidence in the company's business growth sustainability.

Considering the company's revised full-year expectations ($105-109 billion), the company's revenue increase this year is approximately $10 billion. This $10 billion increase is primarily driven by the growth in AI server revenue (FY2025 $9.9 billion - FY2026 $20 billion), while traditional business and client products remain roughly flat.

Dell itself has an annual revenue scale of nearly $100 billion, even if AI server revenue doubles this year, it can only contribute about 10% growth to overall revenue. If the growth rate of the AI server business further slows down, the company will return to the "predicament" of no growth.

Considering the company's current market value ($91 billion), it corresponds to approximately 13.5 times PE for FY2026 net profit (assuming revenue +13%, gross margin 20.3%, tax rate 16.7%). In the AI server track, Dell's valuation seems not high, but the company's overall growth rate is not fast.

Even with the growth in AI server shipments, Dell's long-term revenue growth rate is only 3-4%. The operating profit margin of the ISG business has fallen below 10% in the past two quarters. In other words, even if the AI business scales up, it is difficult to bring a large release of profits with such a low profit margin.

Overall, Dell's earnings report and guidance met market expectations in terms of revenue, but the decline in gross margin will still affect the final profit performance. AI server revenue reached $8.2 billion in the second quarter, but subsequent third and fourth quarter AI server revenue will decline, which seems more like a "fleeting" concentrated delivery action. If the company's overall growth rate returns to single-digit growth, the current PE multiple seems relatively reasonable. If the company wants to break through the current valuation level, it needs to provide more growth points, such as continuous quarter-on-quarter growth of AI servers, AI PC scaling, and other unexpected performances.

Below are Dolphin Research's data charts on Dell Technologies (DELL.N):