Dell Technologies Gains 6% in 3 Months: Time to Buy the Stock?

Dell Technologies (DELL) is demonstrating strong momentum in AI infrastructure, projecting $20 billion in AI server shipments for fiscal 2026, supported by an $11.7 billion AI backlog and a 44% year-over-year increase in Q2 FY26 Infrastructure Solutions Group revenue to $16.80 billion. Despite recent stock underperformance attributed to weaker traditional server and PC demand, Dell's strategic focus on AI-optimized solutions and expanding partnerships are driving growth, with the company forecasting 11% revenue growth for Q3 FY26. The stock's current valuation, trading at a forward 12-month P/S of 0.75x, significantly below the industry average, suggests a compelling investment opportunity as it capitalizes on robust AI demand.

Analysis

Dell Technologies (DELL) presents a dichotomy between its recent stock underperformance and its accelerating operational momentum in the artificial intelligence sector. While the stock's 6.5% year-to-date gain lags its peer Hewlett-Packard (+28.1%) and the broader industry, this is attributed to persistent headwinds in traditional markets, including weaker demand for servers and storage in North America and declining consumer PC revenue. However, these challenges are being significantly offset by explosive growth in its AI-focused business. The Infrastructure Solutions Group (ISG) revenue grew 44% year-over-year to $16.80 billion in the second quarter of fiscal 2026, driven by a 69% surge in servers and networking revenue. This is substantiated by a formidable $11.7 billion AI backlog and a full-year projection of $20 billion in AI server shipments. The company's forward guidance for Q3 FY26 reinforces this positive trajectory, forecasting approximately 11% year-over-year growth in both revenue and non-GAAP EPS. Despite a minor recent downward revision in consensus earnings estimates, the stock's valuation remains a key point of interest, trading at a forward 12-month price-to-sales ratio of 0.75x, a steep discount to the industry average of 7.73x and comparable to its peer HPE at 0.79x.

Key Decisions for Investors

• Investors should consider Dell's current valuation as a potentially attractive entry point for exposure to the AI infrastructure theme, given its significant discount relative to the sector despite strong top-line growth in its server division.
• Monitor the company's ability to convert its substantial $11.7 billion AI backlog into revenue and watch for any margin erosion from competitive pressures, which were cited as an ongoing risk factor.
• Pay close attention to the performance of Dell's traditional server, storage, and consumer PC segments, as a stabilization or recovery in these areas could remove a key drag on overall performance and sentiment.