Forget Hyperscalers: Why Dell's AI Server Business Just Keeps Growing

Dell Technologies is experiencing a significant surge in its AI-optimized server business, highlighted by a $5.8 billion equipment order from IREN to fulfill a $9.7 billion AI cloud capacity deal with Microsoft. This transaction underscores Dell's rapidly growing backlog for AI servers, which has reached $11.7 billion by Q2 FY26, far exceeding supply and driving a 19% year-over-year revenue increase alongside improved operating margins. Analysts anticipate continued strong demand from hyperscalers for AI infrastructure, positioning Dell for sustained growth, with its stock up nearly 40% in 2025 yet trading at a relatively attractive 17x forward earnings.

Analysis

The recently announced $9.7 billion AI cloud capacity deal between IREN and Microsoft significantly benefits Dell Technologies, with IREN committing to purchase $5.8 billion in Dell equipment. This transaction highlights Dell's pivotal role in supplying critical hardware for hyperscaler AI infrastructure expansion, underscoring the escalating demand for high-performance computing components. The deal reinforces Dell's position as a key enabler in the burgeoning artificial intelligence sector.

Dell's AI-optimized server business is demonstrating exceptional growth, with its backlog surging to $11.7 billion by Q2 FY26, a substantial increase from $4.1 billion at the end of FY25. This robust demand significantly outstrips current supply, driving a 19% year-over-year revenue increase in Q2 and pushing operating profit margins to their highest levels since 2018. The company's ability to convert this backlog into revenue will be crucial.

The article projects a sustained AI infrastructure trend, anticipating continued substantial investments from hyperscalers, which bodes well for hardware providers like Dell. Despite a nearly 40% stock appreciation in 2025, Dell trades at an attractive 17 times forward earnings, positioning it favorably compared to other AI beneficiaries. This valuation, coupled with strong underlying demand, suggests potential for continued upside.

Key Decisions for Investors

• Investors should closely monitor Dell's AI-optimized server backlog and its execution capabilities, as the $11.7 billion backlog indicates strong future revenue potential contingent on supply chain performance.
• Consider Dell's current valuation of 17x forward earnings as potentially attractive relative to its peers benefiting from the AI trend, especially given its robust revenue growth and expanding margins.
• Evaluate the long-term sustainability of hyperscaler AI infrastructure spending, as continued investment from major cloud providers like Microsoft is a primary driver for Dell's growth trajectory.