DELL

Valuation: Cheaper Than You'd Expect for an AI Infrastructure Play

Dell's valuation metrics paint a picture of a company the market hasn't fully repriced for its AI pivot. At $145.10 per share, the stock trades at a trailing P/E of 19.4x on TTM earnings per share of $7.48. For context, the S&P 500 trades at roughly 21-22x earnings, meaning Dell is priced at a discount to the broader market despite posting one of the strongest revenue acceleration stories in enterprise tech.

The enterprise value tells a more nuanced story. With $97.2 billion in market cap and $20.0 billion in net debt, Dell's enterprise value sits around $117 billion. Against TTM operating income of $8.15 billion (summing Q1 through Q4 FY26), that yields an EV/operating income multiple of approximately 14.4x — remarkably modest for a company guiding AI server revenue to double.

Compare this to other AI infrastructure beneficiaries. [NVIDIA](/stocks/NVDA) trades at substantially higher multiples, as does [Broadcom](/stocks/AVGO). Even [CoreWeave](/articles/crwv-analysis-coreweaves-18-post-earnings-plunge-exposes-the-high-wire-act-of-ai-infrastructure-spending), which plunged 18% after its own earnings report the same day, carries a richer valuation relative to its revenue base. Dell's discount likely reflects the lower-margin nature of server hardware versus chips or cloud services, but the gap appears wide enough to warrant attention.

Earnings Performance: A Fiscal Year of Accelerating Momentum

Dell's FY26 was a story of building momentum quarter by quarter. Revenue climbed from $23.4 billion in Q1 to $33.4 billion in Q4 — a 43% sequential acceleration that reflects surging AI server shipments. Full-year revenue totalled approximately $113.5 billion, with net income of $5.94 billion, up from $4.58 billion in FY25 and $3.37 billion in FY24.

The Q4 results were particularly striking. Revenue of $33.38 billion came with gross profit of $6.61 billion (19.8% margin) and operating income of $3.09 billion (9.3% margin). Net income hit $2.26 billion — the highest quarterly profit in Dell's recent history. Operating margins expanded from 5.0% in Q1 to 9.3% in Q4, demonstrating that the revenue surge isn't coming at the expense of profitability.

The earnings per share trajectory tells the same story: $1.37 in Q1, $1.70 in Q2, $2.21 in Q3, building toward the TTM figure of $7.48. Dell is not just growing revenue — it's converting that growth into bottom-line results at an improving rate. The company's EBITDA of $2.80 billion in Q4 alone approached the combined EBITDA of Q1 and Q2.

Financial Health: Strong Cash Generation Offset by Leverage

Dell's balance sheet reflects its leveraged buyout heritage — stockholders' equity is negative at -$2.47 billion, a legacy of the 2013 privatisation and subsequent aggressive share repurchases. Total debt stands at $31.5 billion against total assets of $101.3 billion. Net debt of $20.0 billion, while substantial, is being serviced comfortably by the company's cash generation.

The cash position improved dramatically in FY26. Cash and equivalents rose from $3.82 billion at the start of the fiscal year to $11.53 billion at Q4's end — a nearly threefold increase. This cash build occurred even as Dell returned $6.0 billion to shareholders through buybacks and paid $1.46 billion in dividends during FY26.

Dell's working capital management remains a competitive advantage. The company operates with a negative cash conversion cycle of approximately -31 days, meaning it collects from customers and turns inventory faster than it pays suppliers. Days payable outstanding of 114 days versus days sales outstanding of 47 days gives Dell significant float to fund operations.

The current ratio of 0.91 sits below 1.0, which in isolation would raise flags, but Dell has maintained sub-1.0 current ratios for years as a structural feature of its working capital model — not a sign of distress. Interest coverage, while not fully available for Q4, showed healthy levels at 11.9x in Q3, well above any danger threshold.

Growth and Competitive Position: The AI Server Kingmaker

Dell's growth story is now inseparable from the [AI infrastructure buildout](/articles/deep-dive-the-710-billion-data-center-arms-race-why-ai-infrastructure-has-entered-hyperdrive-and-what-it-means-for-investors). The company's guidance for AI server revenue to double in fiscal 2027 positions it as one of the primary picks-and-shovels beneficiaries alongside NVIDIA and Broadcom. Dell's PowerEdge servers, equipped with NVIDIA's latest GPUs, are the physical infrastructure that hyperscalers and enterprises are racing to deploy.

What makes Dell's position particularly defensible is its dual advantage in both AI servers and traditional enterprise IT. While pure-play AI infrastructure companies like CoreWeave focus exclusively on GPU cloud, Dell serves the entire enterprise technology stack — PCs, storage, networking, and servers. This breadth means Dell captures AI demand directly through server sales while maintaining a stable base business that generates consistent cash flow.

Dell is also NVIDIA's largest server OEM partner, giving it privileged allocation during GPU supply constraints. As enterprises increasingly want turnkey AI infrastructure rather than building custom solutions, Dell's sales force, support infrastructure, and integration capabilities become critical differentiators. The company's 1,400+ patent AI portfolio and deep enterprise relationships create switching costs that commodity hardware margins alone wouldn't suggest.

The competitive risk comes from margin compression. AI servers carry lower gross margins than Dell's traditional business due to the high component cost of GPUs and HBM memory. The Q4 gross margin of 19.8% was actually lower than Q3's 21.2%, suggesting the product mix shift toward AI servers is already having an impact. Dell must grow AI server volume fast enough to offset the per-unit margin dilution — a challenge, but one the doubling guidance suggests management believes is achievable.

Forward Outlook: AI Revenue Doubling Sets a High Bar

Analyst estimates for Dell's forward quarters reflect confidence in continued momentum. Consensus revenue estimates for FY27 range from $29.6 billion to $34.4 billion per quarter, with full-year estimates implying roughly $128-130 billion — representing 13-15% growth over FY26. Forward EPS estimates of $2.70 to $3.75 per quarter suggest analysts expect continued earnings expansion.

The most critical catalyst is the AI server revenue doubling target. If Dell's AI server business generated approximately $10-12 billion in FY26 (based on industry estimates), doubling would imply $20-24 billion in FY27 — a massive contributor to overall growth. This guidance aligns with the broader industry trajectory: Meta, Microsoft, Amazon, and Google have all announced expanded AI capital expenditure plans for 2026-2027.

Key risks to the outlook include memory cost inflation (HBM3E memory used in AI servers is in tight supply), potential demand deceleration if hyperscaler capex cycles moderate, and execution risk in scaling manufacturing to meet the doubling target. Dell also faces competitive pressure from HPE and Supermicro in the AI server market, though Dell's enterprise relationships and full-stack integration give it an edge in non-hyperscale deployments.

The next earnings report (scheduled for late May 2026) will be the first real test of the AI doubling trajectory. Investors should watch for AI server revenue as a percentage of total Infrastructure Solutions Group (ISG) revenue, gross margin trends in the ISG segment, and any updates to the doubling guidance.

The Dell-CoreWeave Divergence: A Lesson in AI Infrastructure Positioning

Perhaps the most telling market signal on February 27 was the divergence between Dell and CoreWeave. While Dell surged 19% on its AI server outlook, CoreWeave plunged 18% after its own earnings report. The contrast illustrates a broader market reassessment of how investors want to play AI infrastructure.

Dell represents the asset-light, hardware-sale model: sell AI servers to enterprises and hyperscalers, collect revenue, let the customer bear the utilisation risk. CoreWeave represents the asset-heavy, GPU cloud model: buy the servers yourself, build data centres, and hope customers rent enough compute to cover the massive capital expenditure.

In a rising interest rate environment with AI spending scrutiny intensifying, the market appears to be rewarding Dell's capital-efficient approach over CoreWeave's leveraged bet. Dell generates cash and pays dividends; CoreWeave burns cash and issues debt. Both are legitimate AI infrastructure plays, but they carry fundamentally different risk profiles.

For investors already holding [NVIDIA](/stocks/NVDA) or [Broadcom](/stocks/AVGO) as chip-level AI exposure, Dell offers a complementary position further down the value chain — one that captures AI demand without the semiconductor cyclicality or cloud computing leverage risk.