Dell Technologies Stock Gains Significantly
Dell Technologies (DELL) has seen its stock price increase more than fourfold over the past year, achieving a 323% gain, while the S&P 500 has only managed about 18%. Even Hewlett Packard Enterprise (HPE) lagged behind, climbing by 130.6%. Management had previously identified several factors fueling this growth: customers were still using outdated servers, demand for AI products had surged, and operational costs were decreasing alongside rising sales. However, predicting how high the stock would soar was a different story.
Customer Data Centers and Server Upgrades
In February 2025, Dell’s management revealed that a significant portion of their customers were still operating on 13th and 14th generation servers, ripe for replacement. By May 2025, the demand for AI products became extraordinarily robust, leading to $12.1 billion in AI server orders in fiscal Q1 2026, surpassing their total shipments for that segment in fiscal 2025.
As of August 2025, management reported that over 70% of the installed base was still running on 14th generation servers or older, noting that one 17th generation server could replace six or seven older units. Though results varied, traditional server revenue improved in fiscal Q2 2026, and international demand grew. However, demand in North America, which is Dell’s most profitable area, was weak.
Cost Reductions and Rising Sales
In fiscal Q2 2026, revenue increased by 19%, while operating expenses decreased by 4%. Management attributed this positive shift to the modernization of their processes. It’s worth mentioning that while margin rates were decreasing—with operating margin in the server, networking, and storage sectors dropping to 8.8%—operating income still rose by 14%. AI servers, which generally have lower margins, made up nearly half of that business’s revenue.
A year later, during fiscal Q2 2027, Dell saw a significant uptick in performance. The results released on September 1, 2026, highlighted a revenue increase of 58% to $47 billion, complemented by a dramatic 160% rise in non-GAAP operating income. Even though non-GAAP operating expenses rose by 22% in dollar terms, they effectively dropped to 8.5% of revenue from 11% the previous year. AI orders reached an impressive $60.9 billion in that quarter, around five times what they had in fiscal Q1 2026. They even raised their full-year revenue outlook for fiscal 2027 to $192 billion at the midpoint.
Furthermore, traditional server and networking revenue rose by 122%, largely driven by existing customers upgrading their data centers.
Navigating Margin Rates and Growth
Could you have trusted Dell’s optimistic evaluations despite the declining margin rates? Partly, yes. While the direction of growth was clear, prices contributed to some extent. Back in August 2025, management noted that input costs were decreasing. Yet, by the following year, they acknowledged that those costs had risen, and some of the server growth stemmed from price increases.
As August 2025 approached, the options market expected less volatility, with Dell’s implied volatility sitting in the 2nd percentile of its one-year range. So, while the positive signs were genuine—enough for a reader to act on them—doing so required faith in the management’s narrative despite a declining segment margin rate. The company’s overall operating margin was still above its three-year average, which could give investors food for thought.
Is It Time to Invest in Dell?
Well, maybe. The environment has definitely shifted. Operating margin in the server, networking, and storage area jumped to 15% in fiscal Q2 2027 from 8.8%. Management attributed this improvement to a favorable mix and enhanced rates. The big question now is how much of this positive shift has already been factored into that impressive 323% stock gain. Some may find comfort in investing through the Trefis High Quality Portfolio, which spreads convictions across several strong businesses and has a history of outperforming the major indices.
