Dell Technologies (NYSE: DELL) saw its shares climb sharply in premarket trading on Wednesday, gaining 8.3% to $460.20, following the release of its fiscal second-quarter results. The technology giant reported a record $95 billion AI server backlog, which fueled investor optimism and prompted the company to raise its full-year revenue outlook.
The Round Rock, Texas-based company posted quarterly revenue of $47.0 billion, a 58% increase year-over-year and ahead of the $44.92 billion consensus estimate. Non-GAAP earnings came in at $7.04 per share, also exceeding expectations. The standout metric was the AI server backlog, which now stands at $95 billion, representing 1.28 times the company's newly raised $74 billion AI server sales forecast for the year. This gives Dell an unusually high level of revenue visibility, though executives caution that the backlog is not yet recognized as sales.
Margin Expansion Drives Investor Confidence
While the revenue surge was impressive, the more significant driver of the stock's move was the improvement in profitability. Dell's infrastructure operating margin reached 15%, up 620 basis points from the prior year, thanks to a richer storage mix and better pricing. The Infrastructure Solutions Group (ISG) generated $31.8 billion in revenue, up 89% from a year ago, and contributed $4.8 billion in operating income, a 225% increase. Traditional server sales more than doubled, while storage revenue advanced 26% to $4.9 billion.
Chief Financial Officer David Kennedy attributed the margin gains to a stronger mix of Dell-owned storage, which was the largest profit contributor outside of operating leverage. However, management cautioned that such quarterly benefits may not persist indefinitely, as component costs and supply chain dynamics remain volatile.
Guidance Raised Significantly
Dell raised its fiscal 2027 revenue guidance to $192 billion, up from a previous $167 billion, reflecting stronger-than-expected demand for AI infrastructure. The company also lifted its AI server sales forecast to $74 billion from $60 billion, and its non-GAAP earnings per share target to $25.50, a 42.5% increase from the prior $17.90.
For the current fiscal third quarter, Dell expects revenue of $49 billion and non-GAAP EPS of $6.50. The guidance suggests continued momentum, but investors will be watching closely to see if the company can convert its massive backlog into cash flow. Operating cash flow fell 13% to $2.2 billion in the quarter, while adjusted free cash flow reached $8.1 billion. Buybacks and dividends totaled $4.3 billion, leaving a gap that makes cash conversion a key watchpoint.
Valuation and Market Context
Dell's forward price-to-earnings multiple stands at 18.12, which is notably higher than peers Hewlett Packard Enterprise (NYSE: HPE) at 12.56 and Super Micro Computer (NASDAQ: SMCI) at 8.06, according to LSEG data. This premium valuation reflects the market's confidence in Dell's AI growth trajectory, but it also leaves little room for error. Any backlog cancellations or margin disappointments could lead to sharp downside.
Analysts remain bullish. J.P. Morgan noted that the "AI momentum spoke for itself," while Melius Research raised its price target to $735. However, risks remain, including component cost pressures, supply timing issues, and the potential for low-margin AI hardware to erode profitability.
Dell's stock initially traded at $468.50 at 4:00 AM EDT, but eased to $458.58 by 7:30 AM before recovering to $460.20. The premarket fade trimmed the opening gain but did not erase the positive sentiment. Regular-session trading will reveal whether investors are willing to pay up for the backlog or demand faster cash conversion from the AI boom.
