CHONGQING, CHINA – AUGUST 26: In this photo illustration, a smartphone displays the logo of Dell Technologies Inc. (NYSE: DELL), the American multinational technology company, with the company’s latest stock market chart shown in the background on August 26, 2025 in Chongqing, China. (Photo by Cheng Xin/Getty Images)
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Dell Technologies (NYSE:DELL) reported a set of Q2 2025 earnings that exceeded expectations last week, fueled by a surge in demand for artificial intelligence (AI) servers. Revenue reached $29.8 billion, a 19% increase year on year and surpassing projections, while adjusted earnings per share stood at $2.32, marking a 19% rise compared to the previous year. Nonetheless, the markets overlooked the solid Q2 results, as the company’s forecast for Q3 fell short of expectations, with margins continuing to face pressure. Dell’s stock dropped nearly 9% during Friday’s trading session. This raises the question – is this a prime opportunity to acquire the stock?
AI Is Fueling Growth
Dell’s server division proved to be the company’s standout performer in the last quarter, as major tech firms and large corporations seek to implement high-powered servers for running artificial intelligence applications. During the quarter, Dell shipped $8.2 billion worth of AI servers. The Infrastructure Solutions Group, which experienced a 44% surge in revenue driven by a 69% spike in servers and networking sales, was the main contributor to this growth. In contrast, the Client Solutions Group remained relatively stagnant, posting approximately 1% growth. Key clients for Dell’s servers include Elon Musk-backed xAI and CoreWeave. Dell has a competitive advantage over rivals like Super Micro due to its bundled strategy that integrates hardware, services, and financing, allowing the company to quickly close large-scale AI infrastructure deals.
Furthermore, Dell recently unveiled its 17th-generation Power Edge servers, which offer enhanced performance, security, and energy efficiency compared to previous models, making them appealing to enterprise clients for upgrades. Additionally, as support for Windows 10 concludes in mid-October, a rise in PC demand is anticipated as organizations and consumers transition to Windows 11 or new PCs, potentially benefiting Dell’s Client Solutions Group. Separately, Could this Semiconductor player be the most underestimated AI investment?
Concerns to Consider
Investors have expressed worries regarding the profitability of the server business. The operating margin in Dell’s infrastructure division, encompassing server and networking sales, was 8.8% for the quarter, significantly lower than anticipated figures. While Dell has attributed part of the margin issues to one-off expenditures during the quarter as it endeavored to provide servers equipped with the latest Nvidia chips and adjust to evolving regulatory conditions, this remains troubling. The business utilizes expensive in-demand GPU chips from companies such as Nvidia (NASDAQ:NVDA) and AMD (NASDAQ:AMD).
Additionally, the server market is intensely competitive and somewhat commoditized, which may hinder profit growth even if sales continue to rise. Dell’s third-quarter forecast also fell short of investor expectations. The company projected an adjusted EPS of $2.45 at the midpoint, slightly below market estimates, while revenue expectations of $26.5 to $27.5 billion were generally consistent with consensus figures. However, Dell raised its full-year revenue outlook to between $105 and $109 billion and increased its AI server shipment target to $20 billion, up from a prior forecast of $15 billion.
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There are also concerns about whether Dell’s AI-driven server growth will sustain itself. Over the quarter, Dell recorded $5.6 billion in AI server orders, a decline from $12.1 billion in the prior period. It shipped $8.2 billion worth of servers. This indicates that the AI server backlog decreased to $11.7 billion, down from $14.4 billion in Q1. This could signal a potential decline in revenue in the upcoming quarters.
Is Dell Stock Worth Buying?
Dell stock is currently trading at approximately 13 times forward earnings. This may seem like a reasonable multiple, as Dell is on course to achieve a 13% sales increase this year and around 7% next year, according to consensus estimates. The company’s financial standing is robust. Debt is approximately $29 billion, while its market capitalization currently stands at $85 billion. This results in a Debt-to-Equity Ratio of 34.2%. Cash (including cash equivalents) constitutes $7.7 billion of $87 billion in total assets, leading to a Cash-to-Assets Ratio of 8.9%.
However, the company’s resilience during downturns is slightly inferior to the overall market. During the inflation shock of 2022, Dell’s stock plummeted 44.4% from a high of $60.77 on 9 February 2022 to $33.77 on 12 October 2022, compared to a peak-to-trough decline of 25.4% for the S&P 500. While the recent decline may present a buying opportunity, considering the growth potential in AI infrastructure and the enterprise IT sector, investors should remain cautious of competitive pressures and the cyclical nature that may heighten downside risks in weaker market conditions.
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