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Dell Is Just Beginning to Tell Its AI Story. Buy the Stock.

Oct 08, 2025 20:00:00 -0400 by Jacob Sonenshine | #Technology #Barron's Stock Pick

A Dell PowerEdge XE7740 rack server. (Courtesy Dell)

The company is transforming itself into a growth stock but not being treated as one by the market.

DELL

Dell Technologies Inc. Cl C

1-Year Price Chart

Created with Highstock 2.1.8

$164.53

as of market close October 8, 2025

Market Cap

$111 B

NTM P/E

14.5

Div Yield

1.3%

Beta

1.76

52 Week Range

$66.25

$166.10

Key Points

Dell Technologies is becoming a high-growth company—and its stock is extremely cheap.

This is no longer your father’s Dell, which made only PCs. The company has been growing its business manufacturing servers, which are a crucial component in the high-growth artificial-intelligence industry. Its legacy PC business, meanwhile, can stabilize and continue to produce steady cash flows.

If it all comes together, the stock could surge. The upside is substantial, considering Dell is still priced for slow growth.

Dell’s transformation to a growth stock starts with the AI business. Its infrastructure solutions group, which accounts for all non-PC business, reported sales growth of 44% year over year, to $16.8 billion, in the second quarter. The servers and networking subsegment, meanwhile, grew by 69%, reflecting increased demand for AI servers.

Companies are already spending more than $100 billion each year on AI servers, according to Grand View Research, and should continue to buy more of those products as they build out their data centers to power AI software capabilities. Grand View projects the server business to grow by 39% annually to reach $854 billion by 2030. Jeff Clarke, Dell’s chief operating officer, this week spoke to Barron’s about the company’s servers business.

Created with Highcharts 9.0.1Dell Technologies(DELL / NYSE)Source: FactSet

Created with Highcharts 9.0.12023'24'2520406080100120140160$180

The company is projecting more than $20 billion in sales from AI servers this year, which would make it among the leaders in the field. Other sizable companies include Hewlett Packard Enterprise, Super Micro Computer, and Lenovo, according to Grand View’s report.

Management said on the second-quarter earnings call in August that its enterprise segment grew by double-digit percentages quarter over quarter, a sign that the growth is still in the early stages. One customer is Elon Musk’s xAI, which reportedly agreed to buy $5 billion worth of Dell servers.

Dell also has other ways beyond AI to juice revenue. Management highlighted the services business at its Oct. 7 investor day. The segment, which represents almost a quarter of total revenue, is part of the company’s long-term strategy to win over customers.

“Dell can complement its AI server with engineering expertise and then financial services,” says Gabelli Funds analyst Hendi Susanto. Dell provides consulting for server replacements, while Dell Financial Services comes in handy when a customer can’t pay out of pocket for a purchase. Gabelli Funds owns Dell shares.

Acquisitions, which Dell has made in the past, could be another source of growth. With more than $8 billion in balance-sheet cash and $7 billion of projected annual free cash flow, Dell could easily buy a smaller server maker. It could also borrow funds to acquire a larger company’s data center unit. That way, it can offer a suite of products that complement each other—and win more business.

The company does have more than $20 billion of debt, but “if there’s a CEO that could actually raise money, it’s Michael Dell,” says Susquehanna Financial analyst Mehdi Hosseini.

And Dell still has its PC business. While it’s true that this segment has lost some market share in recent quarters, analysts are calling for 3% growth next year as Dell benefits from an upgrade cycle that incorporates high-performance AI.

Overall, total company revenue is expected to increase about 9%, to $116.6 billion in 2026, according to FactSet. Management confirmed this figure at its investor day, with long-term annual revenue growth guidance of high single digits. Dell’s operating profit guidance of $9.4 billion for fiscal year 2026, at the midpoint of the range, was greater than the $8.2 billion that analysts had forecast previously. Growing sales of AI servers, with larger margins than the rest of the business, would help profitability.

Larger margins, combined with more than $4 billion in annual share repurchases, can drive earnings per share higher. Analysts expect 18% EPS growth next year.

That type of growth could boost the stock if the market perceives it as sustainable. Dell trades at 14.5 times earnings estimates for the coming 12 months, though that multiple could drop if analysts lift their estimates following investor day. Either way, the stock is cheap compared with the S&P 500’s 22 times forward earnings, to say nothing of the many tech hardware stocks whose revenue is tied to AI. That gap is simply too wide for the potential growth.

There is a caveat to the narrative about long-term growth: heated competition. The risk is that Dell would lose its competitive edge to one of the other server makers. M&A could provide a solution but comes with its own risks. If Dell borrows too much money to buy a company and the deal doesn’t pan out, the stock would get hit hard. The PC business, too, could lose its luster versus competitors.

One potential source of competition could turn into an opportunity. Dominant software companies such as Microsoft, Amazon.com, and Alphabet are trying to make their own AI servers. While they have the cash and the tech expertise to do it, Dell could use that as a chance to pivot to midsize customers, known as the “enterprise” segment. Those companies are still ramping up their adoption of AI servers, and many are large enough to finance these purchases, while some others could go through Dell Financing. This would ultimately result in further growth for Dell.

Dude, you’re getting Dell stock.