I paused for a moment when I opened Dell Technologies' earnings report. Revenue increased by 581 TP3T compared to a year ago, and earnings per share jumped by 2,031 TP3T, with the annual guidance even raised by $25 billion. However, after doing my calculations, my conclusion is a Hold, with a 12-month target price of $410 (approximately 555,899 KRW). Let me break down, one by one, why a low target price was reached despite such strong earnings.
The exchange rate used was 1,355.85 KRW per dollar (as of September 4, 2026). All KRW amounts shown below were calculated using this exchange rate, and stock prices were based on the US market closing price of $516.39 (approximately 700,147 KRW) on September 3.
- Dell's Q2 earnings announcement—let's start by looking at the numbers.
- $60.9 billion in AI server orders—is that really good news?
- The point where I stopped at Dell's cash flow
- Dell Valuation and Competitor Comparison: The Weight of a 19x Forward P/E
- Dell Target Price Scenarios and Expected Returns
- Dell Risks and Bearish Triggers
- Personally, this is a point that bothers me.
- Dell Investment Opinion Conclusion
- Frequently Asked Questions
- References
Dell's Q2 earnings announcement—let's start by looking at the numbers.
Dell Technologies' revenue for the second quarter of FY2027 (May–July) was $46.971 billion, up 581 TP3T from a year ago, and its non-GAAP earnings per share of $7.04 exceeded market expectations of $4.91 by 431 TP3T. Non-GAAP figures are adjusted by the company to exclude one-time costs and focus solely on actual performance.
The company raised its annual revenue guidance from $167 billion to $192 billion (approximately 260.3 trillion won), and its AI server backlog stands at a record high of $95 billion (approximately 128.8 trillion won). Guidance refers to the company's own projections, while the backlog represents volume that has been contracted but has not yet been recognized as revenue.
However, the fair forward P/E I calculated is 15x, whereas the current 19.2x represents a 28% premium. Therefore, I have closed with a 12-month baseline target of $410 and a Hold rating, and I believe it is better for those looking to enter the market to wait for a correction.
| division | Q2 sales | Compared to one year ago | Operating profit margin |
|---|---|---|---|
| AI Optimized Server | $16.4 billion (approx. 22.2 trillion won) | +100% | Mid-single digits (company goal) |
| Traditional Server & Networking | $10.53 billion (approx. 14.3 trillion won) | +122% | ISG combined 15.0% |
| Storage | $4.85 billion (approx. 6.6 trillion won) | +26% | ISG combined 15.0% |
| ISG (Infrastructure) Subtotal | $31.78 billion (approximately 43.1 trillion won) | +89% | 15.01 TP3T (Previous year 8.81 TP3T) |
| CSG (PC/Workstation) | $15.03 billion (approximately 20.4 trillion won) | +20% | 7.61 TP3T (6.41 TP3T last year) |
Now that I have created the table, the nature of this quarter has become clear. AI servers have grown enough to account for 351 TP3T of total company revenue, and traditional servers and networking, which were previously considered sluggish, also increased by 1,221 TP3T. With storage also recording its highest performance for the second quarter, the growth is not concentrated in just one area.
The magnitude of the profit improvement is even more impressive. Non-GAAP operating profit was $5.929 billion (approximately 8.0 trillion won), and the operating profit margin rose from 7.71 TP3T to 12.61 TP3T. The operating profit margin is the profit remaining after deducting labor costs and R&D expenses from 100 won of revenue; an improvement of nearly 51 TP3T points means that the rate at which costs increased was much slower than the rate at which revenue grew. In fact, the combined cost of selling, administrative, and R&D expenses decreased from 11.01 TP3T of revenue to 8.51 TP3T.
Looking at the revenue for the last four quarters, it stands at $26.7 billion → $33.4 billion → $43.8 billion → $47 billion. Since this is an increase of 71 TP3T compared to the previous quarter, there are no signs yet that growth is slowing. The guidance for the third quarter is revenue of $49 billion (approx. 66.4 trillion won) and non-GAAP earnings per share of $6.50 (approx. 8,813 won), with a plan for revenue to increase by 811 TP3T compared to a year ago.
The stock price reaction was somewhat unusual. On September 1, the day of the announcement, Dell was swept up in the overall market plunge, closing at $425.00 down 6.81 TP3T, and the earnings were released after the market closed. The following day, September 2, it surged 15.81 TP3T to $492.20, and on the 3rd, it rose another 4.91 TP3T to close at $516.39. During trading on the 3rd, it climbed as high as $530.78, setting a new 52-week high. The detailed figures are Original text of the company's earnings press releaseYou can check it at.
$60.9 billion in AI server orders—is that really good news?
The headline numbers are impressive. Q2 AI server orders totaled $60.9 billion, recognized revenue was $16.4 billion, and the backlog stands at $95 billion. This means that 1.3 times the company's stated annual AI server revenue target of $74 billion is already in contract, making revenue visibility for the next year the best in Dell's history.
I also checked again to see how quickly the scale grew. The Dell analysis post I wrote in early MayWhen I looked into it, I saw that at the time, the FY2027 AI server revenue target was listed as $50 billion. In just four months, that target rose to $74 billion, and the stock price, which was $210.17 at the time, reached $516.39. In other words, earnings outpaced the forecast, but the problem is that the stock price moved one step further ahead of those earnings.
However, I stopped at one sentence while reading the conference call transcript. Chief Operating Officer Jeff Clarke firmly stated that the profitability target for AI servers is still a “mid-single-digit operating profit margin.” This means that for every $100 worth of AI servers sold, they make a profit of about $5.
Let's verify why this is important through calculations. If we apply an operating profit margin of 51 TP3T to annual AI server revenue of $74 billion, the operating profit is approximately $3.7 billion. If we consider the company's non-GAAP operating profit for the same period to be around $22 billion, the calculation shows that the business responsible for 381 TP3T of revenue generates only 171 TP3T of profit. This indicates a significant mismatch between the revenue share and the profit share.
To use an analogy, imagine a butcher shop bustling with customers, but the structure is such that most of the revenue comes from high-end imported meat with a cost ratio of 951 TP 3 T. The store is crowded and the sales graph is trending upward, but the actual profit comes from the side dish corner in one corner. In AI servers, the majority of the cost is the price of Nvidia GPUs, and the margin Dell can add is limited to the assembly, integration, and service portions. For reference. A post summarizing NVIDIA (NVDA) Q2 earningsWe discussed that their gross profit margin is in the 70% range, and it is easier to understand if you consider a significant portion of that margin as Dell's cost of goods sold.
On top of this, additional cost pressure has been added. The company anticipated that the supply of memory, such as DRAM and NAND, as well as some CPUs, would remain tight. During the call, it was also explained that the cost of configurations with higher core counts and added memory and storage has increased compared to the previous quarter. Since this implies that inflation is included in the growth rate, profits may not keep pace with the increase in revenue. The full text of the call is Full record of this earnings announcementYou can view it at.
The point where I stopped at Dell's cash flow
When the income statement looks impressive, I habitually open the cash flow statement first. This quarter was a case where that habit paid off.
| item | Q2 | 1 year ago | change |
|---|---|---|---|
| Cash flow from operating activities | $2.225 billion (approx. 3.0 trillion won) | $2.543 billion | -13% |
| Free Cash Flow (FCF) | $986 million (approximately 1.3 trillion won) | $1.868 billion | -47% |
| Adjusted free cash flow | $8.149 billion (approximately 11.0 trillion won) | $2.518 billion | +224% |
| Inventory assets | $21.29 billion (approximately 28.9 trillion won) | $10.437 billion (end of January) | +104% |
Free cash flow is the actual cash remaining after deducting capital expenditures from earnings. Since this is money that can be used for dividends, debt repayment, or share buybacks, I trust this figure more than profit. However, in the quarter where revenue increased by 581 TP3T, free cash flow actually decreased by half. This is only one-quarter of the net profit of $4.133 billion.
The $8.149 billion in adjusted free cash flow emphasized by the company is the sum of $6.667 billion (approximately 9.0 trillion won) in financial receivables and $496 million in operating lease equipment. Financial receivables are accounts receivable that Dell has set aside with customers to collect equipment costs in installments. It is a structure where Dell Financial Services, an in-house financial organization, covers customer purchases on their behalf, but I do not view this with the same weight as "cash already in hand." This is because collection risks and financing costs remain on Dell's side.
You also need to consider that inventory has doubled in just six months. If this is the result of securing GPUs and memory in advance to fill the backlog, it is a reasonable choice. However, the simultaneous growth of inventory and accounts receivable also implies that as sales increase, cash remains tied up outside the company for a longer period. This point is... Pure Storage (PSTG) Analysis ArticleIf you compare it to the cash turnover of the storage companies covered earlier, the difference is quite significant.
Shareholder returns remain aggressive. In the quarter, the company returned $4.3 billion (approximately 5.8 trillion won), combining $3.796 billion in share buybacks and $405 million in dividends. Share buybacks have the effect of increasing the value of remaining shares as the company purchases and eliminates its own stock; indeed, the number of diluted shares decreased by 51 TP3T from 686 million to 652 million in just one year. However, equity remains negative at $1.427 billion. As this is the result of long-term share buybacks and financing through debt, total borrowings amount to $34.466 billion (approximately 46.7 trillion won).
Dell Valuation and Competitor Comparison: The Weight of a 19x Forward P/E
Valuation is the process of determining whether a stock is cheap or expensive. First, I determined the earnings that will serve as the benchmark. The company's FY2027 non-GAAP earnings per share guidance is $25.50 (approximately 34,574 KRW); since it already earned $11.90 in the first half, the figure for the second half is $13.60. Adding the first-half portion of the FY2028 consensus of $28.61 ($13.35) to this yields an earnings per share of approximately $26.95 (approximately 36,540 KRW) for the next 12 months. The consensus is the average of analyst forecasts, in other words, the market's expectation.
Dividing the current price of $516.39 by this $26.95 gives a forward P/E of 19.2 times. The forward P/E is based on expected earnings over the next 12 months, meaning that it would take about 19 years for current earnings to accumulate to match the current stock price.
Here, I did not use the current multiple as the fair value. Doing so would automatically lead to the conclusion that "the current stock price is correct." Instead, I brought in two external criteria. First, Dell's own average forward P/E over the past five years is approximately 11.1 times. Second, the median forward P/E of peers is 11.9 times. Averaging these two criteria yields 11.5 times, but the business structure has changed too much to use this figure as is.
| enterprise | Preceding P/E | Sales growth rate | Gross profit margin | Operating profit margin |
|---|---|---|---|---|
| Dell Technologies (DELL) | 19.2 times | +57.7% | 19.9% | 11.5% |
| Hewlett Packard Enterprise (HPE) | 11.9 times | +40.0% | 33.8% | 8.7% |
| Supermicro (SMCI) | 7.1 times | +93.2% | 10.8% | 13.4% |
| HP(HPQ) | 10.2 times | +12.5% | 19.7% | 5.4% |
| NetApp (NTAP) | 17.2 times | +12.5% | 70.7% | 27.3% |
| Lenovo (0992.HK) | About 11.9 times | – | – | – |
Looking at the table, Dell's position is ambiguous. Its growth rate is the second highest, but its profit margin is at a mid-range level, while its multiple is the highest. It is particularly confusing when compared to NetApp. NetApp has a gross profit margin of 70.71 TP3T and an operating profit margin of 27.31 TP3T, with a forward P/E of 17.2 times. Gross profit margin is the profit calculated by subtracting only the cost of goods sold from 100 won in revenue, which implies that the nature of their businesses is fundamentally different from Dell's 19.91 TP3T.
Nevertheless, I believed it was appropriate to apply a revaluation premium to Dell. My reasoning is threefold. First, the business center of gravity has actually shifted as the proportion of ISG revenue increased from 571 TP3T to 681 TP3T. Second, revenue visibility is incomparable to the past due to a $95 billion backlog. Third, the structure involves a reduction in the number of outstanding shares by 5 to 61 TP3T annually through share buybacks. Therefore, I applied a premium of 301 TP3T to the baseline of 11.5x. Fair forward P/E of 15.0xI set it that way. Based on this standard, the current 19.2x is the 28% premium zone.
I also cross-checked it using cash flow. DCF is the theoretical fair value calculated by adding up the cash a company will earn in the future, discounted to today's value. All assumptions are disclosed in the table below.
| DCF assumption | Weakness | basic | stress |
|---|---|---|---|
| Year 1 Free Cash Flow | $7.5 billion | $11 billion | $14 billion |
| 5-year average annual growth rate | 2% | 8% | 13% |
| WACC (discount rate) | 11.5% | 10.5% | 9.5% |
| End-of-life growth rate | 2.5% | 3.0% | 3.0% |
| Fair value per share | $98 | $256 | $488 |
Let me explain why I set the Year 1 cash flow at $11 billion. While the actual free cash flow this quarter is around $4 billion annually, that is the result of spending on growth by increasing inventory and accounts receivable. Assuming a normal state where working capital is neutral, the upper limit is $14.6 billion—adding $3.1 billion in depreciation to $16.5 billion in net income and subtracting $5 billion in capital expenditures. I lowered this figure to $11 billion to account for the working capital burden. The default DCF value of $256 is significantly lower than the value calculated using multiples, which I interpreted as a signal that cash generation is not as strong as earnings.
Dell Target Price Scenarios and Expected Returns
| scenario | Target price | Won | home | Probability |
|---|---|---|---|---|
| stress | $520 | Approximately 705,042 won | Upgraded to forward P/E 18x + EPS $29 | 25% |
| basic | $410 | Approximately 555,899 won | Fair forward P/E 15x × future 12-month earnings per share of $26.95, DCF compromise | 45% |
| Weakness | $315 | Approximately 427,093 won | Multiple reverts to the company's 5-year average of 12x + Earnings per share of $26 | 30% |
Let me explain the rationale behind setting the probabilities at a base of 451 TP3T, a bullish 251 TP3T, and a bearish 301 TP3T. Since the current multiple is 281 TP3T higher than my fair value, I placed slightly more weight on the bearish side. However, there are absolutely no signs of earnings declining, and the backlog covers over 12 months of revenue, so I did not overestimate the probability of a sharp decline.
I have included the growth outlook here as well. The weighted growth rate I calculated was based on a weight of 401 TP3T for historical growth, 401 TP3T for the consensus, and 201 TP3T for industry growth, projecting a future earnings growth rate of approximately 121 TP3T per year. The important point here is that the market views this similarly. Compared to the FY2027 earnings per share guidance of $25.50, the FY2028 consensus of $28.61 represents an increase of only 121 TP3T. This implies that analysts also believe the current explosive growth will end as a one-time jump. If so, it is difficult to explain the current stock price, which pays 18 times the FY2028 benchmark.
For reference, the Wall Street consensus differs quite a bit from mine. The average target price from 24 analysts is $556.13 (approximately 754,029 KRW), and the investment rating is Buy. Following the earnings announcement, Citi and Bank of America raised their target prices to $600, while Morgan Stanley raised its target from $434 to $499 but maintained a Neutral rating. For detailed reactions, This reportIt is summarized there. There is only one point where I diverge from the consensus. I assigned a multiple based on margins and cash generation, not revenue and backlog.
Dell Risks and Bearish Triggers
I have organized the risks in the order of “What → How → Where to check.” I have even included indicators that you can verify yourself.
First is memory cost inflation. If DRAM and NAND prices continue to rise, the already thin margins for AI servers will be further compressed. Since Dell secures orders at the price at the time of contract and purchases components later, there will be periods where it is difficult to immediately pass on price increases to customers. The key indicator to watch is the ISG operating profit margin in the quarterly earnings. You can consider it a signal if it drops below 121 TP3T from the current 15.01 TP3T.
Second is customer concentration and the risk of order cancellations. AI server orders are concentrated among a small number of large and emerging AI cloud providers. If their funding is blocked, the backlog will not turn into revenue and will be pushed back. An article analyzing Coreweave (CRWV)While we previously discussed the debt and free cash flow structures of emerging AI cloud vendors, I am also noting that these companies are mixed in with Dell's customer list. The areas to check are quarterly AI server order volumes and changes in the backlog.
Third, it is the FY2028 growth cliff. If the consensus earnings growth rate falls to 121 TP3T, the basis for justifying the current 19x multiple disappears. Even if the multiple is pushed down to just 15x, the stock price will correct by more than 201 TP3T. What needs to be checked is the change in analysts' FY2028 earnings per share estimates. If they are revised upward, the probability of my bearish scenario decreases.
Fourth, the financial structure. Equity is negative $1.427 billion, and total borrowings amount to $34.466 billion. Subtracting the $14.248 billion in cash and long-term investments leaves net borrowings at $20.2 billion. If interest rates rise again or the credit rating wavers, the interest burden will cut into profits. On top of this, with $21.2 billion in inventory, there is also a risk of valuation losses if demand for AI suddenly cools.
What I see Bearish triggerIt boils down to three points: ① a decline in ISG operating profit margin for two consecutive quarters, ② a drop in quarterly AI server orders below $30 billion, and ③ free cash flow falling below 301 TP3T of net profit for two consecutive quarters. If two of these occur simultaneously, I will lower my rating to Sell. Conversely, if there is evidence that the AI server operating profit margin moves out of the mid-single digits and rises to the 8–101 TP3T range, there is sufficient reason to switch to Buy. Similar margin debates Broadcom (AVGO) Earnings ReviewWe covered this in [another context] as well, but that was the opposite case where the margin was high, so the multiple was justified.
Personally, this is a point that bothers me.
As I reviewed these earnings, what I lingered on the longest was the sense that a “well-made company” is different from a “stock to buy wisely.” Frankly, Dell’s execution is admirable. They secured tight-supply components to push out volume while lowering cost ratios by 2.51 points, and in the process, returned $4.3 billion to shareholders. Organizations like this are rare. However, my enthusiasm cooled when I looked at the two tables side by side. The table on the left showed revenue growth of 581 points, while the table on the right showed a decrease in free cash flow of 471 points.
Another thing that weighs on me is the weight of the word "backlog." While analyzing various AI infrastructure stocks in the past, I observed a pattern multiple times where the stock prices of companies with large order backlogs already reacted at the time of contract announcements. The figure of $95 billion is certainly real, but no one knows yet how much profit that will translate into. All the company provided was a target of "mid-single digits." Therefore, I decided to acknowledge this backlog as 1001 TP3T in terms of revenue visibility, but only half as profit visibility. That difference of half created the $146 gap between my target price and Wall Street's target price.
Dell Investment Opinion Conclusion
My opinion is HoldThe confidence level is moderate, and the 12-month baseline target price is $410 (approximately 555,899 KRW).
There are three signals that led to this conclusion. First, the valuation is 281 TP3T above the fair forward P/E of 15x that I calculated, and the expected return came out to minus 20.81 TP3T. Second, however, the fundamentals are accelerating, not slowing down. Revenue, margins, and guidance are all trending upward, and the backlog is at an all-time high. Third, the quality of growth is the issue; the operating profit margin for AI servers is in the mid-single digits, and free cash flow is one-quarter of net profit. Therefore, although I judged it to be overvalued, I could not bring the recommendation down to "Sell." After all, you cannot apply an opinion to a stock whose earnings are exploding that is meant for a declining one.
To summarize from a practical perspective: If you already hold the stock, this is a good time to hold on while monitoring the trend of your backlog converting into revenue. However, if you are considering a new entry, I would advise you to wait. I am keeping an eye on two entry conditions: the stock price correcting to the low $400 range, or the company confirming that AI server margins have moved out of the mid-single digits. When either of these occurs, I will have grounds to switch to a Buy rating.
Frequently Asked Questions
What do you estimate the target price for Dell to be?
My 12-month baseline target price is $410 (approximately 555,899 KRW), and my rating is Hold. If we assume a bullish scenario of $520 and a bearish scenario of $315 with probabilities of 251 TP 3 T and 301 TP 3 T, respectively, the expected value is $409. This differs significantly from the Wall Street average target price of $556.13, because I placed more weight on margins and cash generation than on revenue growth.
Why is the target price lower than the current price when the performance is so good?
Improved earnings and whether the market's valuation multiple is appropriate are separate issues. Dell's recent five-year average forward P/E is approximately 11 times, and the median for peers is 11.9 times, but it currently stands at 19.2 times. Although I raised the fair value to 15 times to reflect changes in the business structure, I still viewed the current stock price as being 281 TP3T ahead.
Then, is the $95 billion AI server backlog meaningless?
This is highly significant. With 1.3 times the annual AI server revenue target of $74 billion already under contract, revenue for the next year is effectively secured. However, the backlog is a revenue commitment, not a profit commitment. You must also consider that the company's stated target for the AI server operating profit margin is in the mid-single digits, meaning the rate at which revenue turns into profit is low.
Is the Dell dividend worth receiving?
The quarterly dividend is $0.63 per share (approximately 854 KRW), totaling $2.52 annually. Based on the current price, the dividend yield is around 0.51 TP3T, which is low for holding the stock solely for dividends. Dell places much more emphasis on share buybacks than dividends in its shareholder returns. In the second quarter, the company spent $3.796 billion on treasury shares and $405 million on dividends.
When is the next earnings announcement and what should I look at?
The next announcement is expected in late November, and the Q3 guidance is $49 billion in revenue and $6.50 in non-GAAP earnings per share. There are three things I will be watching: whether the ISG operating margin maintains 151 TP3T, whether quarterly AI server orders remain at the $60 billion level, and how much free cash flow recovers relative to net income.
References
- Dell Technologies, Q2 FY2027 Earnings Press Release (2026-09-01)
- Full Transcript of Dell Technologies Q2 FY2027 Conference Call
- CNBC: Dell Raises Q2 Earnings and Annual Guidance
- CNBC Adjusts Analyst Targets Following Earnings Release
For the draft of this article, I used AI research tools to organize public disclosures and press releases, and I personally reviewed the numbers and logic before publication. This article was written to share information and is not a recommendation to buy or sell any specific stocks. Please keep in mind that stock prices, exchange rates, and estimates are based on the time of writing and are subject to change quickly; the final judgment and outcome are the responsibility of the investor.