Dell's Server Surge: Can Margins Catch Up With Growth?
Dell Technologies' stock has seen an impressive 341% return over the past twelve months, outperforming its peer group. This growth can be attributed to strong demand for its servers, which has surpassed supply.
The company's operating margin of 9.6% ranks fourth in its peer group, with Cisco Systems boasting a significantly higher margin of 23.7%. However, Dell's revenue growth of 49.0% over the last twelve months is the highest among its peers, surpassing even Cisco's 9.2% growth.
Dell's success can be attributed to several factors, including its AI servers business, which has a record $95 billion backlog as of fiscal Q2 2027. Additionally, the company has gained more than 10 points of traditional server share over the past two quarters and is shifting sales from partner products to its own Dell IP lines, which earn higher margins.
The company's CFO noted that while some demand may be borrowed, with customers ordering early to secure supply, management believes that real demand exists. The test for Dell will be whether it can maintain its growth and margin expansion in the coming quarters.