"AI Server Sales Surge 757%... Why Dell's Stock Doubled in a Month" [Click e-Stock]

"AI Order Backlog Reaches $51.3 Billion"
Traditional Server Replacement Demand Also Expanding

Securities analysts have indicated that Dell Technologies (DELL.US) is likely to see prolonged earnings growth, as replacement demand for traditional servers is picking up alongside continued demand for AI (artificial intelligence) servers.

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According to Kiwoom Securities on June 2, analyst Park Gihyun stated, "For the first quarter of the fiscal year, Dell posted revenue of $43.8 billion (approximately 66 trillion won), up 88% year-on-year, and excluding one-off expenses, earnings per share (EPS) rose 214% to $4.86, delivering an earnings surprise that exceeded market expectations by more than 60%."

The Infrastructure Solutions Group (ISG) led performance, with sales soaring 181% year-on-year to $29 billion. Within ISG, revenue from AI-optimized servers surged 757% to $16.1 billion, and traditional server and networking sales also climbed 92% to $8.5 billion. The ratio of operating expenses to revenue fell to 8.4%, the lowest level in the past 20 years.

During the quarter, Dell secured $24.4 billion in new AI orders, bringing its year-end AI order backlog to a record-high $51.3 billion. Based on this, Dell sharply raised its annual sales guidance for next year by $27 billion to $167 billion.

Analyst Park attributed the robust results in the traditional server segment to a structural shift that goes beyond a short-term recovery in demand. He noted, "Most mainstream server installations consist of outdated equipment, driving strong demand for migration to high-density platforms. As AI services expand toward inference workloads and the use of agentic AI increases, demand is also rising for existing CPU (central processing unit) servers that support and control GPUs (graphics processing units)."

There is also ample room for further upside from a valuation perspective. Dell's 12-month forward price-to-earnings ratio (PER) stands at 27 times, below the industry average of 29 times. Although the stock price has nearly doubled over the past month, the PER remains below the industry average because earnings estimates have been raised more quickly than the share price.

Park added, "Profitability improvements have translated into strong cash generation, with first-quarter operating cash flow reaching a record $4.1 billion. Based on this, Dell returned a total of $2.1 billion to shareholders through share buybacks and dividends, and this consistent shareholder return policy will serve as a buffer supporting the lower bound of the stock price."

However, he also cautioned that it remains to be seen whether demand will continue at a normal pace in the coming quarters. Park pointed out, "Some of the demand was driven by customers placing advance orders due to supply uncertainties, and there are still supply chain bottlenecks in procuring components."

This content was produced with the assistance of AI translation services.