Dell (DELL) Q1 Earnings Preview: AI Server Margins Under the Microscope

Quick Summary

• Dell Technologies releases Q1 FY2027 results after the closing bell on Thursday, May 28
• Wall Street forecasts $3.00 earnings per share alongside revenue of $34.95 billion—representing a 49% annual increase
• The company started FY2027 carrying a $43 billion AI server order backlog following more than $25 billion in deliveries
• Bank of America maintained its Buy rating while lifting the price target to $280, anticipating beats and guidance increases
• DELL shares opened at $243.00, climbing 3.3%, trading within a 52-week span of $106.38 to $263.99

Dell Technologies faces a pivotal moment as it prepares to unveil Q1 FY2027 financial results on May 28, with investors focused on one critical issue: can the company convert its enormous AI server pipeline into sustainable profitability rather than just top-line expansion?

Dell Technologies Inc., DELL

DELL began Thursday’s session at $243.00, gaining 3.3% and commanding a market capitalization near $156.9 billion. The shares have experienced significant momentum, now trading substantially above the 200-day moving average of $151.57—a clear signal of the stock’s recent outperformance.

Wall Street projects Dell will post $3.00 in earnings per share with $34.95 billion in quarterly revenue. That revenue figure would mark a remarkable 49% surge versus the year-ago period, when AI server shipments were still in earlier growth stages.

Dell’s internal projections lean slightly conservative, forecasting Q1 EPS at $2.90 and full-year earnings of $12.90 per share. However, the company has a track record of exceeding expectations—during the previous quarter, Dell delivered $3.89 EPS against a $3.53 consensus, while revenue of $33.38 billion surpassed the $31.60 billion estimate.

AI Infrastructure Drives Growth

The Infrastructure Solutions Group (ISG) represents the primary catalyst behind Dell’s valuation expansion. In the most recent quarter, ISG generated $19.6 billion in revenue, reflecting 73% year-over-year growth. AI-optimized server systems accounted for roughly 46% of that segment.

Dell concluded FY2026 holding $64 billion in total AI server commitments. After fulfilling over $25 billion worth of orders, the company entered FY2027 with a $43 billion backlog. Leadership has outlined expectations for approximately $50 billion in AI-optimized server revenue throughout this fiscal year—representing more than a doubling from the prior year.

Achieving that annual target requires AI server revenue somewhere in the $12–$13 billion neighborhood for the current quarter.

Profit Margins Take Center Stage

While revenue acceleration is largely anticipated, the market’s primary focus centers on Dell’s ability to preserve profitability levels.

When Dell ships AI servers equipped with Nvidia GPUs, top-line numbers expand rapidly—however, GPU and memory components generally yield compressed margins. ISG’s operating margin fluctuated from 18.1% in Q4 FY25 to a low of 8.8% in Q2 FY26 before bouncing back to 14.8% in Q4 FY26. That rebound demonstrated improving operational efficiency.

For this quarter, margins landing in the low-to-mid teen percentage range would likely satisfy investors provided AI server shipment volumes remain robust.

The Client Solutions Group, responsible for PC sales, continues struggling with minimal growth. Revenue expansion has remained confined to low single-digit percentages while operating income has contracted—though this division receives decreasing attention from the investment community.

At 18.7 times forward earnings, DELL currently commands a 68% premium over its five-year historical average multiple of 11.1x. This valuation expansion reflects the market’s repositioning of Dell as an AI infrastructure provider rather than a traditional PC manufacturer.

Bank of America reaffirmed its Buy recommendation while increasing the price target from $246 to $280, projecting Dell will surpass estimates and elevate full-year projections. Mizuho maintains an Outperform stance with a $260 objective. Goldman Sachs elevated its target to $230.

The aggregate Wall Street view stands at Moderate Buy, incorporating 12 Buy ratings, 4 Hold ratings, and 1 Sell rating across 17 recent analyst assessments. The mean price target sits at $218.87—notably trailing the stock’s current market price.

Dell also announced a dividend increase to $0.63 per share from $0.53, establishing a $2.52 annualized payout with an approximate 1% yield.

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