Key Takeaways
- Gross margins at Dell have declined 26% since the company began disclosing AI server revenue in February 2025
- AI server sales now represent 37% of Dell’s total revenue stream, generating ten times the income of laptop and PC sales
- First quarter fiscal 2027 earnings per share reached $4.86, crushing analyst expectations of $2.96; total revenue climbed to $43.84 billion, reflecting an 87.5% year-over-year increase
- Analyst community maintains a Moderate Buy rating with a mean price target of $490.38
- Company insiders have offloaded more than $1.4 billion in shares over the last three months
Dell Technologies (DELL) shares began trading Wednesday at $431.24, climbing approximately 4% as artificial intelligence infrastructure sales continue propelling top-line growth. Yet beneath the impressive revenue figures lies a profitability dynamic that’s catching investor attention.
The company’s latest quarterly performance delivered results that exceeded expectations across the board. Dell posted earnings of $4.86 per share, demolishing the Street consensus of $2.96 by $1.90. Total revenue reached $43.84 billion, significantly surpassing the $35.74 billion forecast and marking an 87.5% jump versus the prior-year period.
Artificial intelligence servers have become the primary catalyst for this expansion. This business segment now comprises 37% of Dell’s aggregate revenue and produces ten times the income generated by conventional laptop and PC sales.
Profitability Faces Headwinds From Product Mix Shift
The margin narrative, however, presents complications. Dell’s gross margin has contracted 26% since the company initially disclosed AI server revenue at February 2025’s conclusion. The latest quarter showed an 18.1% gross margin, a metric directly influenced by the increasing proportion of AI server revenue in the overall mix.
While AI-optimized infrastructure commands strong demand, these products deliver thinner margins compared to Dell’s legacy offerings. Management addressed this reality during the earnings conference call and had previously cautioned investors in February 2025 about anticipated margin erosion stemming from the changing product composition.
NYU Stern finance professor Aswath Damodaran offered a straightforward assessment: “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 presented a contrarian perspective on the margin concerns. His analysis suggests compression only becomes problematic when absolute gross profit dollars cease expanding — a scenario not currently materializing. “It becomes a problem if it becomes that we’re really not adding to the bottom line at all,” Fish explained.
A Dell spokesperson informed Fortune that the AI division “has grown on top of a very strong core business” and emphasized the company’s objective “to maintain gross margin rate stability in each of our lines of business.”
Wall Street Sentiment and Internal Share Movements
The analyst community remains predominantly optimistic. Dell maintains a Moderate Buy consensus rating, with 20 analysts recommending purchase, 10 advising hold positions, and only one suggesting sale. The consensus price target stands at $490.38.
Mizuho and Sanford C. Bernstein both elevated their price objectives to $500 following the earnings release. Argus upgraded its target from $200 to $460. Conversely, Jefferies moved to a hold recommendation.
Dell secured $3 billion through senior unsecured note offerings in June, strengthening its capital structure flexibility.
Among institutional investors, Lansforsakringar Fondforvaltning expanded its DELL holdings by 6.2% during the first quarter, concluding with 111,185 shares valued at $18.25 million.
Insider transactions have shown significant selling activity. Over the previous 90 days, company insiders have liquidated approximately $1.4 billion in stock holdings. Board member Silver Lake Partners IV divested 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 established fiscal year 2027 earnings guidance at $17.90 per share and second quarter 2027 guidance at $4.80 per share.
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