Dell Analyst Says Expanding AI Server Pipeline Could Drive Double-Digit Earnings Growth

In a Friday note, JP Morgan analyst Samik Chatterjee maintained an Overweight rating on Dell Technologies Inc DELL with a price target of $150.

Chatterjee hosted Dell’s Paul Frantz, VP of Investor Relations, for an investor meeting following the company’s fourth-quarter earnings.

Dell reported quarterly revenue of $23.9 billion, up 7% year over year, but missed the analyst consensus estimate of $24.6 billion.

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Adjusted EPS of $2.68 beat the analyst consensus estimate of $2.53.

The AI Server revenue guidance of $15 billion+ for fiscal 2026 is driven by Tier 2 CSPs, similar to the $10 billion in fiscal 2025. However, Dell noted increasing traction from the Enterprise vertical, disclosing deals with over 2,000 Enterprise customers over the past six quarters. Dell noted significant opportunities in the AI server market, which it estimates is now tracking to a TAM of $295 billion, implying the company is targeting a market share of 5%+.

Dell continues to emphasize an expanding and accelerating AI Server pipeline, which is several times larger than the company’s backlog of $4 billion at the end of the fourth quarter. Additionally, Dell noted that the recent transition from Hopper to Blackwell is expected to drive lumpiness with supply ramping.

Dell emphasized that while the AI Server business is margin-dilutive, it is accretive to gross/operating profit, earnings, and cash flow across both large and small deals.

Dell noted that despite expanding AI Server revenue from ~$2 billion in fiscal 2024 to ~$10 billion in fiscal 2025, ISG operating margins increased from 12.6% in fiscal 2024 to 12.8% in fiscal 2025. Thus, the guidance for fiscal 2026 incorporates a similar dynamic, as ISG operating margins will likely remain stable despite the outlook for AI Server revenue to expand to at least $15 billion.

The Storage forecast for low-single-digit growth in fiscal 2026 incorporates continued demand momentum for mid-range products, such as Power Store and Power Scale. This growth is partially offset by the shift to Dell IP, with Partner IP becoming a headwind and ongoing declines in high-end products, where the market is structurally declining. Nonetheless, the growth, particularly for Dell IP, is expected to impact both gross and operating margins positively.

Chatterjee is more positively inclined toward the AI-driven compute investment cycle, which should benefit branded server companies. However, the drivers for the remaining businesses are more mixed, subject to the macro backdrop.

The analyst was more confident in the sustainability of a more substantial growth rate in the ISG group, led by a stronger compute investment cycle. This sets up the company for double-digit earnings growth as it cycles past the macro pressures on PCs and General-Purpose servers.

While Dell is unlikely to be perceived as a primary beneficiary of an AI investment cycle, Chatterjee expects all server companies to benefit from selling higher-end servers with upsides in ASP and (operating) margin.

The analyst noted the upside to Dell shares stemming from attributing a higher target valuation multiple to the shares relative to their historical average because of the leverage to AI investments. A strong rebound in PCs and an uplift from adopting AI PCs can provide further upside to the analyst’s estimates.

Chatterjee projected first-quarter revenue of $23.04 billion and adjusted EPS of $1.65.

Price Action: DELL stock is up 440% at $96.56 at last check Friday.

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