Dell Technologies and Hewlett Packard Enterprise (HPE) are set to report their quarterly earnings this week, facing intense scrutiny from investors eager to see if strong demand for AI servers can justify their impressive stock gains this year. Dell reports its fiscal second-quarter results on Tuesday, with analysts expecting revenue to jump nearly 50% to $44.48 billion and adjusted earnings per share (EPS) to more than double to $4.93. The company previously reported a record AI server backlog of $51.3 billion in the first quarter, with AI-optimized server revenue surging 757% to $16.1 billion. Dell's stock has already soared 266% year-to-date, making further upward revisions to guidance a key focus for analysts.
HPE, scheduled to report its fiscal third-quarter earnings on Wednesday, is similarly expected to show robust growth driven by its expanding AI infrastructure. Analysts anticipate HPE's revenue to surge 30% to $11.96 billion and adjusted EPS to more than double to $0.93. The company has been actively expanding its AI infrastructure footprint, including unveiling "Saudi Made" servers for sovereign AI deployments. HPE's stock has also seen a substantial 120% gain year-to-date.
A central concern for both companies is the impact of AI server sales on profit margins. While AI demand is exceptionally strong, leading to record backlogs and significant revenue growth, the high volume of AI servers can depress consolidated gross margins due to their lower profitability compared to other segments. For example, Dell's non-GAAP gross margin in Q1 was 18.1%, down from 21.6%, primarily attributed to AI servers. Investors will be looking for signs that operating margins can stabilize or improve despite this product mix shift, and for management commentary on memory shortages and the ability to maintain strong free cash flow.
Analyst sentiment for Dell is generally positive, with a consensus "Buy" rating and an average price target of around $510, implying an 11.84% upside. The highest price target comes from Susquehanna at $700, citing the growing revenue share of AI servers and the potential for high-margin services to offset hardware gross margin dilution. However, some, like UBS and Morgan Stanley, maintain "Neutral" ratings due to the already significant stock appreciation and potential risks such as component cost increases or a lack of further guidance raises, which could lead to profit-taking. JPMorgan and Evercore have suggested Dell could again raise its FY2027 revenue guidance, currently at $165 billion to $169 billion, and its AI-optimized server revenue guidance, which was raised to about $60 billion for the full year in Q1.
