DELL's ISG Sales Gain Momentum: Can Servers Keep Driving Growth?

Dell Technologies (DELL) reported strong Q2 FY26 results, with Infrastructure Solutions Group (ISG) revenue increasing 44% year-over-year to $16.80 billion, primarily driven by a 69% surge in server and networking revenues. This growth was fueled by robust demand for AI servers, with Q2 shipments reaching $8.2 billion and full-year AI server guidance raised from $15 billion to $20 billion, supported by an $11.7 billion AI backlog. Despite facing significant competition from Hewlett-Packard Enterprise and Super Micro Computer, Dell's shares appear undervalued with a 0.75x forward Price/Sales ratio compared to the sector's 6.59x, and the company carries a Zacks Rank #2 (Buy).

Analysis

Dell Technologies is demonstrating significant momentum driven by its Infrastructure Solutions Group (ISG), which reported a 44% year-over-year revenue increase to $16.80 billion in Q2 fiscal 2026. This growth is primarily fueled by the server and networking division, which surged 69% to $12.94 billion, reflecting robust demand for both traditional and artificial intelligence (AI) servers. The company's strength in the AI space is underscored by $8.2 billion in AI server shipments in the quarter, a substantial AI backlog of $11.7 billion, and an upward revision of its full-year AI server shipment guidance from $15 billion to $20 billion. Despite this strong performance, the stock has gained only 5% year-to-date, underperforming the broader technology sector's 13% return. However, it faces intense competition from Hewlett-Packard Enterprise, which saw server business growth of 5.6%, and Super Micro Computer, which reported $5.62 billion in server and storage revenue. From a valuation perspective, DELL appears inexpensive with a forward 12-month Price/Sales ratio of 0.75x, significantly below the sector's 6.59x, and consensus earnings estimates for fiscal 2026 have been revised upwards, suggesting 16.58% year-over-year growth.

Key Decisions for Investors

• Given the substantial AI-driven growth, a raised full-year guidance, and a large $11.7 billion backlog, investors may view Dell's recent stock underperformance relative to the tech sector as a potential entry point to gain exposure to the AI infrastructure theme.
• The stock's low forward Price/Sales multiple of 0.75x compared to the sector average suggests a significant valuation discount, which value-oriented investors should assess alongside the company's strong operational performance and growth prospects.
• It is crucial to monitor the competitive dynamics from rivals like HPE and SMCI, as their ability to capture AI-related deals and bring new technology to market first could impact Dell's market share and future growth trajectory.