Why is Evercore ISI So Bullish on Dell Technologies

Key Takeaways

• Evercore ISI’s recent "Tactical Outperform" rating signals strong confidence in Dell's ability to exceed upcoming earnings expectations, driven by robust AI server demand and a rebounding traditional hardware market.
• Dell's AI infrastructure strategy is yielding significant results, with a $18.4 billion backlog in AI server orders and projected $25 billion in FY26 AI server shipments, positioning it as a key beneficiary of the AI build-out.
• Despite a broader IT hardware slowdown, Dell's core PC and traditional server/storage segments are showing resilience, with strategic pricing and market share gains bolstering overall performance.

Why is Evercore ISI So Bullish on Dell Technologies?

Evercore ISI recently added Dell Technologies (NYSE: DELL) to its "Tactical Outperform" list, signaling a strong conviction that the company is poised to beat consensus estimates for its upcoming fiscal fourth-quarter earnings report on February 26, 2026. This optimistic outlook stems from Dell's strategic positioning at the nexus of two powerful market forces: the insatiable demand for AI infrastructure and a long-awaited refresh cycle in the commercial PC market. Analysts anticipate Dell will surpass the consensus of $31.4 billion in revenue and $3.52 in earnings per share (EPS).

The firm's confidence is rooted in several key factors. Evercore expects strong near-term demand across both traditional hardware, including PCs and servers, and the high-growth AI compute segment. Furthermore, rising memory component prices are creating a "demand pull-in" phenomenon, as corporate clients accelerate hardware purchases to pre-empt projected 15% to 30% price increases in memory and storage components. This proactive buying behavior is expected to provide a surprise upside to Dell’s Q4 revenue and EPS.

While Evercore did slightly adjust its price target to $160 to account for broader tech sector valuation pressures, the underlying message remains one of fundamental strength. The firm projects Dell to outline a path to at least high-single-digit revenue growth and low-to-mid-teens EPS growth into fiscal 2027, supported by gross profit dollar expansion, operating leverage, and share repurchases. This forward-looking guidance, coupled with a record-breaking $18.4 billion backlog in AI-optimized servers, underpins the bullish sentiment.

This tactical rating comes at a crucial time, highlighting Dell's "AI Factory" strategy as it begins to yield historic results. Investors are increasingly looking beyond short-term market volatility to focus on Dell’s dominance in the AI server market and its ability to maintain margins despite rising component costs. The market reaction has been cautiously optimistic, reflecting a growing consensus that Dell is uniquely positioned to capitalize on these dual tailwinds.

How is Dell Capitalizing on the AI Infrastructure Boom?

Dell Technologies is rapidly emerging as a central player in the burgeoning AI infrastructure market, a narrative strongly supported by its recent financial performance and strategic initiatives. The company's Q3 FY26 results underscored accelerating AI server momentum, with orders reaching a staggering $12.3 billion for the quarter, bringing year-to-date orders to $30.0 billion. Shipments for the quarter were $5.6 billion, contributing to $15.6 billion in year-to-date shipments.

This robust demand has translated into a record $18.4 billion backlog in AI server orders, indicating durable demand from neocloud, sovereign, and enterprise buyers. Dell’s guidance for Q4 FY26 projects approximately $9.4 billion in AI server shipments, with full-year AI server shipments now expected to be roughly $25.0 billion, representing a remarkable 150% year-over-year increase. This momentum is driven by Dell's rack-scale engineering and time-to-value differentiation, with AI racks becoming operational within 24–36 hours and achieving uptimes exceeding 99%.

The strategic takeaway here is that rack-level integration and deployment speed are critical differentiators as "AI factories" expand. Dell's "AI Factory" story, in partnership with NVIDIA, is resonating deeply with clients. This isn't just about selling "regular servers with a new label"; these are GPU-heavy, data-hungry systems purpose-built for AI workloads. The integration with Red Hat/OpenShift and the provision of AI-validated designs simplify the transition from proof-of-concept to production for enterprises.

Furthermore, AI quickly becomes a data problem, especially with unstructured data. Dell's storage platforms, such as PowerScale and ObjectScale, are riding along with server growth, making sense for clients grappling with massive data volumes. This comprehensive approach, combining AI-optimized servers, strong ecosystem partnerships, and robust data management, positions Dell as a full-stack infrastructure and AI platform company, attracting significant enterprise interest and expanding its five-quarter pipeline to multiples of its current backlog.

What's the State of Dell's Traditional Business Segments?

While AI servers grab headlines, Dell's traditional business segments, the Infrastructure Solutions Group (ISG) and Client Solutions Group (CSG), continue to demonstrate resilience and strategic importance. In Q3 FY26, the PC unit (CSG) reported operating income of $748 million on revenue of $12.5 billion, marking a 3% increase from a year ago. Commercial client revenue was particularly strong, up 5%, offsetting a 7% decline in consumer revenue. This indicates a healthy commercial refresh cycle, a key tailwind for Dell.

The Infrastructure Solutions Group (ISG), encompassing traditional x86 servers and storage, also showed sequential improvement. Traditional x86 server demand grew double-digits, with acceleration in EMEA and North America, reflecting consolidation and a shift towards denser compute with higher DRAM and storage footprints. This trend is further supported by PC refresh cycles and AI-related modernization, which contribute to broader IT upgrades. Dell’s ability to manage supply chain bottlenecks more effectively than smaller peers, leveraging its scale, is a significant competitive advantage in this environment.

In storage, Dell-IP platforms like PowerStore, PowerMax, ObjectScale, and PowerFlex posted double-digit demand growth, with PowerStore notably growing for seven consecutive quarters. This portfolio mix shift and margin improvement in storage supported ISG’s operating income rate, which advanced to 12.4%, up 360 basis points sequentially. These trends suggest steady infrastructure pull-through alongside the booming AI builds, creating a balanced growth profile.

Moreover, early IDC data suggests Dell gained approximately 100 basis points of market share in the fourth quarter in the client segment, marking its first share gain in over three years. This is a crucial indicator of competitive strength in a market that has seen some softness. Dell's cost discipline and supply-chain agility are proving central to sustaining margin stability and delivery cadence, especially amid rising memory component pricing. The company has proactively shifted to more dynamic pricing actions and shorter quote windows to better protect margins going forward.

Are Dell's Financials and Valuation Attractive for Investors?

Dell Technologies, currently trading at $122.27, presents a compelling financial picture, albeit with nuances that investors should consider. The company boasts a market capitalization of $81.95 billion. From a valuation perspective, Dell's trailing twelve-month (TTM) P/E ratio stands at 16.24, which appears reasonable compared to the broader tech sector. Its P/S ratio of 0.79 and P/FCF of 18.42 further suggest that the stock isn't excessively priced given its growth trajectory.

Recent financial performance highlights significant growth. For FY2025, Dell reported robust year-over-year (YoY) growth: revenue increased by 8.1%, net income surged by 35.5%, and EPS grew by 38.7%. This demonstrates the company's ability to translate top-line expansion into strong bottom-line results. However, it's worth noting that operating cash flow and free cash flow saw declines of -47.9% and -68.4% respectively, reflecting the high costs associated with the booming AI server business and potential working capital impacts.

Analyst sentiment remains largely positive, with a consensus "Buy" rating from 42 analysts, and a median price target of $167.00. This implies a substantial upside from the current share price. Evercore, for instance, maintained its Outperform rating with a $160 price target. While some analysts like Morgan Stanley have maintained an "Underweight" rating with a $101.00 target, the overall consensus points to significant appreciation potential.

Dell also offers a quarterly dividend of $0.53 per share, translating to a dividend yield of 1.7%. With a payout ratio of 27.3%, the dividend appears sustainable and offers a modest income stream for investors. The company's return on invested capital (ROIC) of 13.2% indicates efficient capital allocation, despite a negative return on equity (ROE) of -210.7%, which is often influenced by its capital structure and share repurchase activity.

What are the Key Risks and Headwinds Facing Dell?

Despite the strong tailwinds from AI and a rebounding PC market, Dell Technologies faces several notable risks that investors must consider. One significant concern is the potential for cash flow strain and margin dilution within its booming but high-cost AI server business. While the Infrastructure Solutions Group (ISG) is experiencing substantial growth, the competitive landscape and high component costs, particularly for GPUs and High Bandwidth Memory (HBM), can pressure profitability and impact liquidity metrics like operating and free cash flow. This "two-speed business model" where robust growth in one area tests financial stability while another segment faces declines is a delicate balancing act.

Another persistent challenge is the ongoing weakness in the Client Solutions Group (CSG), Dell's personal computer business. Although commercial client revenue showed growth, consumer revenue declined by 7% in Q3 FY26, and overall CSG revenue was down 1% year-over-year. A broader IT hardware market slowdown, as noted by Morgan Stanley, with hardware budgets growing at just 1% year-over-year in 2026, could exacerbate this. Survey data suggests 30%-60% of customers might cut planned PC, server, and storage purchases if price hikes persist, posing a risk to Dell's core markets.

Cybersecurity threats and supply chain pressures also represent material risks. Dell is exposed to sophisticated cyber-attacks, and a recent disclosure of a critical zero-day vulnerability (CVE-2026-22769) impacting Dell RecoverPoint for Virtual Machines, actively exploited by a state-backed hacking group, highlights potential reputational and operational risks. Furthermore, heavy reliance on single-source or limited-source suppliers for critical components, coupled with rising material costs and geopolitical risks, could lead to compressed margins and impact product availability and delivery.

Finally, the accelerating migration of enterprise computing workloads to hyperscale public cloud providers presents a long-term secular headwind for Dell's on-premises IT infrastructure sales. This shift, alongside the increasing demand for highly specialized AI infrastructure dominated by GPU providers like Nvidia and custom silicon from hyperscale cloud providers, could potentially bypass traditional server OEMs for the most lucrative AI deployments. Persistent analyst downgrades, such as Morgan Stanley's consistent "Underweight" rating and lowered price targets, also reflect ongoing pessimism about the stock's near-term outlook.

Is Dell Technologies a "Buy" for Retail Investors Today?

Dell Technologies presents a compelling, albeit complex, investment thesis for retail investors. The company is undeniably a primary beneficiary of the AI revolution, with its "AI Factory" strategy and substantial AI server backlog positioning it for continued growth in this high-demand sector. This strong momentum, coupled with a resilient traditional business and strategic market share gains in PCs, paints a picture of a company effectively navigating a dynamic technology landscape.

However, investors must weigh these opportunities against the inherent risks, including potential margin pressures from high AI server costs, ongoing softness in parts of its PC business, and broader macroeconomic headwinds impacting IT spending. The recent stock pullback, down 24.2% since October 31, 2025, primarily driven by a -30.4% change in its P/E multiple, suggests that the market is already pricing in some of these concerns. Yet, this also creates a potentially attractive entry point for long-term investors.

With a consensus "Buy" rating from Wall Street and a median price target implying significant upside, Dell appears undervalued at its current price of $122.27. The upcoming Q4 FY26 earnings report on February 26, 2026, will be a critical catalyst, providing further clarity on its AI server ramps, margin management, and outlook for FY27. Investors should closely monitor these results and management's commentary to validate the bullish thesis.

Ultimately, Dell Technologies is a company in transition, leveraging its legacy strengths to capitalize on new growth vectors. For investors with a medium to long-term horizon who believe in the sustained growth of AI infrastructure and Dell's ability to execute its full-stack strategy, the current valuation, combined with a modest dividend, could offer a solid opportunity.

Dell Technologies is strategically positioned to capitalize on the AI infrastructure boom and a recovering PC market, making its upcoming earnings report a pivotal event for investors. While risks remain, the company's strong backlog and analyst optimism suggest potential for upside. Long-term investors should consider Dell's balanced growth drivers and attractive valuation in the context of its strategic market positioning.

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