Dell: Rightsizing Operations To Defend Margins (Earnings Preview)

Dell Technologies is expected to report earnings on May 29, 2025, with analysts anticipating revenue and earnings decline for FY 2026. However, strong AI server sales, driven by partnerships and enterprise adoption of AI infrastructure, are expected to drive top-line growth. An analyst maintains a BUY rating with a $119 price target, anticipating a strong earnings surprise despite potential weakness in consumer PC sales.

Analysis

Dell Technologies (NYSE:DELL) is poised to announce its earnings on May 29, 2025, against a backdrop of generally cautious analyst sentiment, with revenue and earnings forecasts for fiscal year 2026 having been revised downwards. Despite this, the company's substantial investments in data center capacity are expected to yield strong results, particularly from AI server sales, which are anticipated to be a primary driver of top-line growth. This optimism is fueled by strategic partnerships, including one with xAI, and the broader trend of enterprise adoption of AI infrastructure. However, the Client Solutions Group may face headwinds, with performance potentially remaining flat due to sluggish consumer PC demand impacted by inflation and tariffs that are prolonging discretionary spending decisions, although this could be partially offset by commercial refresh cycles. The provided analysis suggests Dell's valuation is attractive compared to its peers in the infrastructure segment. One analyst maintains a BUY rating with a $119 price target, forecasting a significant earnings surprise driven predominantly by the acceleration in AI server growth.

Key Decisions for Investors

• Investors should closely scrutinize Dell's upcoming earnings report, specifically focusing on the growth trajectory and forward guidance for AI server sales, as this is highlighted as the key catalyst for near-term performance.
• Given the analyst's expectation of a strong earnings surprise driven by AI server demand, investors might consider positioning for potential upside, while remaining aware of the more subdued broader analyst forecasts for FY 2026.
• It is advisable to monitor the performance of the Client Solutions Group, paying attention to the interplay between weak consumer PC sales, impacted by inflation and tariffs, and the mitigating effect of commercial hardware refreshes.
• Consider Dell's valuation relative to its infrastructure peers; if the AI-driven growth materializes as anticipated, the current valuation could present a favorable entry point or justification for maintaining/increasing exposure.