DELL: Can AI's doubling growth ease 'storage crunch' concerns?---

DELL $Dell Tech(DELL.US) released its FQ4 2026 results (quarter ended Jan 2026) after the U.S. market close on Feb 27 Beijing time.

1. Core results:$Dell Tech(DELL.US) reported revenue of $33.4bn, +39.5% YoY, beating consensus ($31.8bn). QoQ revenue rose by $6.4bn, mainly driven by AI server shipments. GPM was 20.2%, down 50bps QoQ and slightly below consensus (20.4%). As AI servers carry lower margins vs. services, mix shift toward AI hardware structurally diluted GPM.

2. ISG (Infrastructure Solutions): revenue was $19.6bn, up $5.5bn QoQ, ahead of consensus ($18.6bn). The entire QoQ uplift was driven by AI servers.

① AI servers: segment revenue was about $8.95bn, below consensus ($9.4bn).

That said, AI new orders reached $34.1bn, far above consensus ($11.0bn), with backlog at $43.0bn by quarter-end. Dolphin Research estimates next-quarter AI server revenue at $11.0bn+, well above prior street expectations ($7.5bn), serving as the key incremental driver.

② Other: ex-AI servers, trends were stable. Legacy server-related revenue was about $5.85bn (+27% YoY), and storage was roughly $4.8bn (+2% YoY).

3. CSG (Client Solutions): revenue was $13.5bn, +13.6% YoY, above consensus ($12.5bn). By customer type: commercial revenue was $11.6bn, +16% YoY, remaining the core driver, while consumer revenue was $1.9bn, roughly flat YoY.

4. Next-quarter guidance: revenue of $34.7–35.7bn, well above consensus ($29.2bn). Supported by the ~$43.0bn backlog, guidance uplift is primarily AI-driven (Dolphin Research est. +~$2.0bn QoQ). GAAP EPS is guided at $2.55, ahead of consensus ($2.00).

Dolphin Research view: explosive AI orders set up an acceleration

Results were strong, with revenue up $6.3bn QoQ. Growth was led by ISG (servers) shipments.

① AI revenue reached $8.95bn, up $3.3bn QoQ. AI new orders hit a record $34.1bn, far exceeding market expectations ($10–11bn), and backlog rose to $43.0bn by quarter-end, laying the groundwork for high growth ahead.

② Guidance surprised to the upside. Management expects next-quarter revenue of $34.7–35.7bn, implying a ~$2.0bn QoQ lift at the midpoint, beating street ($31.8bn). With firm orders in hand, Dolphin Research estimates next-quarter AI revenue at $11.0bn+, up $2.0bn+ QoQ, which is the main reason for the higher guide.

Mgmt raised its long-term outlook (FY2026–FY2030 revenue CAGR 7–9%), and the stock once topped $165. The pullback since then reflected several concerns.

a) Tighter storage market: AI demand has driven sharp storage price hikes since 2H25. As PCs are a key end market for storage, sustained price increases directly weigh on legacy PC performance.

Per Qualcomm and others, the issue has escalated from price hikes to shortages. That implies paying up still may not secure supply, prompting a cautious PC outlook.

In this storage up-cycle, legacy CSG will remain under pressure.

b) AI servers: progress here is the key swing factor as legacy businesses face headwinds.

Hyperscalers have raised capex outlooks. Dolphin Research estimates the four core cloud players (Alphabet, Meta, Microsoft, Amazon) could invest $660bn+ in 2026, up 62% YoY.

If DELL does not lift its AI outlook further, given prior guidance (FY2026–FY2030 AI CAGR 20–25%), that implies either ① capex growth will slow meaningfully later; or ② DELL’s share of AI capex will decline.

NVIDIA is DELL’s key partner for AI servers. As the industry shifts from training toward inference, ASICs may challenge NVIDIA GPUs. If NVIDIA’s edge narrows, investors may worry about DELL’s AI server growth. That said, DELL’s focus on enterprise and sovereign/Gov. customers supports steadier AI growth.

DELL’s current market cap is ~$80.5bn, implying ~9x FY2027 post-tax core earnings (assuming revenue +29%, GPM 19.5%, tax rate 18.5%). Historically, the multiple has mostly ranged 8–20x.

Today’s multiple sits near the low end, largely reflecting storage inflation and PC pressure. With storage now in a ‘price hike to shortage’ regime, PC outlook remains cautious, keeping legacy businesses under strain.

With legacy pressure hard to avoid, AI is the key swing factor. The quarter delivered $34.1bn of new AI server orders, far above consensus ($11.0bn). Backlog reached $43.0bn, underpinning high growth in AI.

Mgmt also guided FY2027 revenue of $138–142bn, with AI revenue at $50bn, doubling YoY and well ahead of market expectations ($35–40bn). With AI doubling, overall growth should accelerate.

The current low multiple already embeds concerns around storage tightness and legacy pressure. Now, stronger AI momentum clarifies the growth trajectory, supporting earnings and multiple recovery. Given storage’s cyclicality, valuation could see further upside once supply tightness eases.

Details from Dolphin Research on DELL $Dell Tech(DELL.US):

I. Overall performance

1.1 Revenue

DELL delivered FQ4 2026 (25Q4) revenue of $33.38bn, +39.5% YoY, above consensus ($31.8bn). QoQ revenue rose by $6.4bn, with both ISG (Infrastructure) and CSG (Client) contributing, including a $3.3bn QoQ uplift from AI.

1.2 Gross profit

Gross profit was $6.73bn in 25Q4, +15.5% YoY.

GPM came in at 20.2%, down 50bps QoQ, slightly below consensus (20.4%). Mix shift toward lower-margin ISG diluted overall GPM.

1.3 Opex

Operating expenses were $3.64bn in 25Q4, +3% YoY. Scale benefits drove the opex ratio down to 10.9%.

Breakdown: 1) R&D was $0.8bn, +3% YoY, with continued investment; 2) SG&A: $2.84bn, +3% YoY.

1.4 Earnings

Core operating profit was $3.1bn in 25Q4, +34% YoY, with core OPM improving to 9.3%. Profit growth was driven by revenue expansion and margin recovery.

II. Core business trends

By segment, ISG strengthened on AI server growth, lifting its mix to 58.7% this quarter.

Per prior guidance, FY2026–FY2030 CAGR for ISG (11–14%) should outpace CSG (2–3%), implying a continued mix shift toward ISG.

ISG is the most important segment. Breaking it down:

2.1 ISG (Infrastructure Solutions)

ISG revenue was $19.6bn in 25Q4, +72.7% YoY, beating consensus ($18.6bn).

Details: ① AI servers delivered about $8.95bn, up $3.3bn QoQ, the main incremental driver. ② Legacy servers and related contributed $5.85bn (+27% YoY). ② Storage contributed $4.8bn (+2% YoY).

ISG growth was driven by AI servers, with AI now over 40% of ISG.

Beyond reported AI revenue, management disclosed AI new orders and backlog, both forward indicators. AI new orders were $34.1bn, far above consensus ($11.0bn), and backlog reached $43.0bn by quarter-end, underpinning high AI growth into FY2027.

Given NVIDIA’s partnership with DELL, some had worried ASICs might pressure NVIDIA-linked AI servers. This quarter’s progress shows AI momentum remains intact. Management even guided FY2027 AI revenue of $50bn, implying a doubling and reinforcing market confidence in AI.

2.2 CSG (Client Solutions)

CSG revenue was $13.5bn in 25Q4, +13.6% YoY, ahead of consensus ($12.5bn).

By customer: commercial revenue was $11.6bn, +16% YoY, while consumer revenue was $1.9bn, roughly flat YoY.

Global PC shipments were 76.4mn units in Q4 2025, +11% YoY, showing a rebound. DELL shipped 11.7mn units (+17% YoY), outpacing the market and lifting share back to 15%.

Per discussions with Qualcomm and others, storage dynamics have shifted from price hikes to outright shortages. Even paying up may not secure supply, keeping the PC outlook cautious.

In response, DELL raised PC prices to pass through part of the cost (effective Jan 6, 2026), while also working to secure more storage supply and safeguard the supply chain.

Price hikes may curb end demand, while supply remains uncertain. With storage tight, CSG will stay under pressure.

Risk disclosure and statement:Dolphin Research disclaimer and general disclosures