Dell Technologies (NYSE:DELL) saw its shares advance in premarket trading on Wednesday, following a positive margin signal from a sector peer that bolstered confidence in the profit potential of artificial intelligence server offerings. The stock rose 2.5% to $414.24 as of 09:01 EDT, building on Tuesday's 6.01% gain that closed at $404.15.
The catalyst came from Super Micro (NASDAQ:SMCI), which released preliminary fourth-quarter gross margin guidance of 15% to 17%, significantly above its prior forecast of 8.2% to 8.4%. This unexpected improvement in server economics, rather than a surge in demand, has become the focal point for investors evaluating the AI hardware landscape.
Dell's own AI backlog reached $51.3 billion as of May 1, representing 85.5% of its $60 billion annual sales target. The company reported $24.4 billion in AI orders for the first quarter of fiscal 2027, with $16.1 billion recognized as AI server revenue. The order-to-bill ratio stood at 1.52, indicating strong demand visibility.
However, the key takeaway from both companies' data is the improving margin picture. Dell's non-GAAP gross margin for Q1 dropped 350 basis points to 18.1%, which executives attributed primarily to the AI server product mix. Despite this compression, the company maintained its mid-single-digit operating income target for AI servers, suggesting that profitability is stabilizing.
Super Micro's margin shift is particularly telling because it indicates that changes in customer mix can boost returns across the sector. The company's fresh orders topped $60 billion, resulting in a record backlog, though management cautioned that some orders could face cancellation or postponement. The preliminary results have not been audited.
Dell's Infrastructure Solutions Group (ISG) demonstrated the impact of improving server economics, with operating margin rising 80 basis points to 10.5%. Revenue from AI servers grew nearly ninefold year-over-year, underscoring the rapid scaling of this business line.
Despite the positive momentum, Dell shares remain 11.8% below their June 1 peak. Analysts have set a median price target of $500, suggesting potential upside of about 21%, though this depends on margins holding steady. Risks persist, including memory supply constraints and ongoing margin pressures related to AI server configurations.
Hewlett Packard Enterprise (NYSE:HPE) also rose in premarket trading, reflecting broader sector optimism. Super Micro is scheduled to report final results on August 11, while Dell's next quarterly figures are expected on September 3. These upcoming reports will provide a crucial test of whether the current margin expectations are sustainable.
The developments highlight a shift in investor focus from top-line growth to profitability in the AI server market. As both Dell and Super Micro demonstrate improving economics, the sector may be entering a phase where margin expansion becomes a key driver of valuation.
