Key Takeaways
- Gross profit margins at Dell have contracted 26% since the company began disclosing AI server revenue in February 2025
- AI server products currently represent 37% of Dell’s total revenue stream, generating revenue 10 times greater than the PC and laptop division
- First quarter fiscal 2027 earnings per share reached $4.86, crushing analyst expectations of $2.96; total revenue climbed to $43.84 billion, marking an 87.5% year-over-year increase
- Analyst community maintains a Moderate Buy rating with average target price of $490.38
- Company insiders have offloaded more than $1.4 billion in shares over the preceding 90-day period
Shares of Dell Technologies (DELL) stock began trading Wednesday at $431.24, climbing approximately 4% as artificial intelligence server demand continues fueling impressive top-line growth. However, a deeper examination of the company’s financial statements reveals underlying concerns that market participants are beginning to scrutinize more carefully.
Dell’s latest quarterly performance delivered numbers that exceeded expectations across the board. Earnings per share landed at $4.86, surpassing consensus forecasts of $2.96 by a substantial $1.90 margin. Total revenue reached $43.84 billion, significantly outpacing analyst predictions of $35.74 billion and representing an impressive 87.5% jump compared to the prior-year period.
The primary catalyst behind this explosive growth is the AI server division. This segment currently contributes 37% of Dell’s entire revenue base and produces ten times the income generated by the company’s conventional laptop and desktop computer sales.
Profitability Concerns Emerge Amid Product Mix Shift
While revenue figures paint an impressive picture, the profitability metrics tell a more complicated story. Dell’s gross margin percentage has declined 26% since the company initially disclosed separate AI server revenue figures at the conclusion of February 2025. The most recent quarterly report showed an 18.1% gross margin, a metric directly influenced by the increasing proportion of AI server sales within the overall revenue composition.
Artificial intelligence-focused server systems, despite experiencing robust demand, deliver thinner profit margins compared to Dell’s legacy product portfolio. Management addressed this dynamic during the earnings conference call and had previously cautioned investors in February 2025 to anticipate margin compression resulting from this evolving product mix.
Aswath Damodaran, a finance professor at NYU Stern, offered a straightforward assessment: “Lower gross margins indicate worse unit economics, and to the extent that this is not temporary, it has to be built into Dell’s continuing profitability story.”
James Fish, an analyst with Piper Sandler, challenged the pessimistic interpretation. His perspective suggests that margin deterioration only becomes genuinely problematic when absolute gross profit dollars cease expanding — a scenario not currently materializing. “It becomes a problem if it becomes that we’re really not adding to the bottom line at all,” Fish explained.
A Dell spokesperson informed Fortune that the AI division “has grown on top of a very strong core business” and emphasized the organization’s objective “to maintain gross margin rate stability in each of our lines of business.”
Street Sentiment and Trading Activity
The analyst community remains predominantly optimistic about Dell’s prospects. Current consensus reflects a Moderate Buy stance, with 20 analysts recommending purchase, 10 suggesting hold positions, and only one advising sale. The mean price objective stands at $490.38.
Following the earnings release, both Mizuho and Sanford C. Bernstein elevated their price targets to $500. Argus substantially increased its target from $200 to $460. Conversely, Jefferies shifted its rating to a neutral hold position.
Dell successfully raised $3 billion through a senior unsecured note offering in June, bolstering its financial flexibility and capital structure.
Regarding institutional activity, Lansforsakringar Fondforvaltning expanded its DELL holdings by 6.2% during the first quarter, concluding the period with 111,185 shares valued at approximately $18.25 million.
Insider transaction data reveals significant selling activity. Throughout the past 90 days, company insiders have disposed of nearly $1.4 billion worth of shares. Board member Silver Lake Partners IV divested 39,537 shares at $403.12 per share on June 12. Richard Rothberg, the company’s General Counsel, sold 20,000 shares at $410.00 each on June 15.
Management has established fiscal 2027 earnings per share guidance at $17.90, with second quarter fiscal 2027 EPS projected at $4.80.
