Dell Technologies (DELL) stock opened at $431.24 on Wednesday, up around 4%, as the AI server boom continues to drive headline revenue numbers. But a closer look at the financials reveals a tension investors are starting to pay attention to.
Dell’s most recent quarterly earnings were hard to ignore. The company reported $4.86 EPS, beating the $2.96 consensus by $1.90. Revenue came in at $43.84 billion, well ahead of the $35.74 billion estimate and up 87.5% from the same quarter a year ago.
AI servers are the engine behind that growth. The segment now accounts for 37% of Dell’s total revenue and generates 10 times the consumer revenue of traditional laptops and PCs.
But the gross margin picture is less flattering. Dell’s gross margin has fallen 26% since it first broke out AI server revenue at the end of February 2025. The company reported an 18.1% gross margin for the most recent quarter, a figure tied directly to the growing weight of AI server sales in the revenue mix.
AI-optimized servers, while high in demand, carry lower margins than Dell’s traditional products. Dell acknowledged this in its earnings call and had previously warned investors in February 2025 to expect margin pressure from the product mix shift.
NYU Stern finance professor Aswath Damodaran put it plainly: “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.”
Piper Sandler analyst James Fish pushed back on the bearish read. His view is that margin compression only becomes a real problem if gross profit dollars stop growing — and right now, they aren’t. “It becomes a problem if it becomes that we’re really not adding to the bottom line at all,” Fish said.
Dell’s spokesperson told Fortune the AI business “has grown on top of a very strong core business” and that the company’s goal is “to maintain gross margin rate stability in each of our lines of business.”
Wall Street is largely still on board. The stock carries a Moderate Buy consensus, with 20 analysts holding buy ratings, 10 at hold, and just one sell. The average price target sits at $490.38.
Mizuho and Sanford C. Bernstein both raised their targets to $500 following the earnings print. Argus lifted its target from $200 to $460. Jefferies, however, downgraded to hold.
Dell raised $3 billion in senior unsecured notes in June, improving its financing flexibility.
On the institutional side, Lansforsakringar Fondforvaltning increased its DELL position by 6.2% in Q1, ending with 111,185 shares worth $18.25 million.
Insider selling has been active. In the last 90 days, insiders have sold nearly $1.4 billion worth of stock. Director Silver Lake Partners IV sold 39,537 shares at $403.12 on June 12. General Counsel Richard Rothberg sold 20,000 shares at $410.00 on June 15.
Dell has set FY2027 EPS guidance at $17.90 and Q2 2027 EPS guidance at $4.80.
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