At 20x Earnings, Dell Still Looks Affordable Thanks to AI

At 20x Earnings, Dell Still Looks Affordable Thanks to AI

Is Dell Technologies (NYSE:DELL) pricey at 20 times earnings? Not at all. Especially if you consider the fact that the company's earnings could more than double in the next few years as the AI infrastructure cycle hits full throttle.

The Revenue Engine: From PCs To AI Powerhouses

How is that? We believe Dell can maintain a high-growth trajectory driven by its Infrastructure Solutions Group (ISG). While Dell was historically viewed as a steady PC manufacturer, it has reinvented itself as a primary provider of the specialized rack servers that power generative AI. In FY 2026, Dell's AI server orders hit a staggering $64 billion, proving that AI is no longer a "sideline" but the defining growth engine.

For context, Dell's revenue for FY 2026 jumped nearly 19% to over $113 billion. With management guiding for FY 2027 revenues to reach as high as $142 billion, the company is on a path to scale at a pace rarely seen in legacy hardware.

The Margin Expansion Story

Combine revenue growth with the fact that Dell's margins are on an improving trajectory. Historically, the hardware business was a low-margin "box-moving" game, with net margins hovering around 3% to 4%. However, as high-value AI servers and software-defined storage become a larger portion of the mix, these margins are shifting. In the latest quarter, net margins reached 6.7%, nearly double the 10-year median.

Larger enterprise tech peers like Cisco or specialized AI players boast even higher margins. As Dell scales its AI-optimized hardware and streamlines its operating expenses (which dropped to just 9.9% of revenue in late FY 2026), reaching sustainable double-digit operating margins looks increasingly realistic.

Is 2-3x Growth Possible?

So, is a massive expansion in earnings possible? Absolutely. When you pair a projected $50 billion+ in AI server revenue for the coming year with an aggressive share repurchase program (Dell recently added $10 billion to its buyback authorization), the math for earnings per share becomes very compelling.

Now, if earnings grow significantly, the P/E multiple naturally shrinks, assuming the stock price stays the same. But investors are betting that won't happen. Instead of the P/E dropping from its current 20x to a "value stock" level of 10x, a scenario where the multiple holds steady at 18x to 22x while earnings skyrocket, could easily fuel a 2x growth in Dell's stock price over the next 24 to 36 months.

A Word of Caution

While the bull case is strong, investors should keep an eye on component costs. Specifically, rising prices for DRAM and high-bandwidth memory (HBM) can occasionally squeeze hardware margins if Dell cannot pass those costs to customers immediately.

What about the time horizon? Whether the "AI Gold Rush" takes three years or five to fully mature doesn't change the fundamental shift in Dell's business model. As long as the company maintains its lead in the AI server backlog, currently a record $43 billion, the stock price will likely follow the expansion of its bottom line.

Our Trefis High Quality Portfolio (HQ) strategy focuses on high-conviction, data-backed ideas where price and intrinsic value have meaningfully diverged. You get disciplined exposure to opportunities like this without having to track every narrative shift or earnings cycle yourself. The strategy has outperformed its benchmark (a blend of the S&P 500, S&P MidCap, and Russell 2000), delivering over 105% returns since inception.