Holding $95 Billion in Backlogged AI Orders! Profit Margin Surges Against the Trend, Dell (DELL.US) Achieves “Boom in Both Profits and Orders”

English Markets APP noted that Dell Technologies (DELL.US) recently announced a significant upward revision of $25 billion in its FY2027 performance guidance, with backlog orders rising by $43.7 billion quarter-on-quarter, becoming the absolute focus of the market.

Previously, the market maintained a largely neutral and wait-and-see stance, mainly because while an upward revision of FY2027 guidance was anticipated, concerns remained over the overall operating profit margin, as the rapid growth of AI servers could dilute profitability, creating uncertainty in the earnings structure.

However, the latest financial report shows significantly better-than-expected performance:

Guidance far exceeds expectations: FY2027 full-year revenue guidance has been raised by $25 billion, with full-year non-GAAP EPS increasing by an additional $7.6, representing a 42% increase over previous guidance.

Profitability has improved substantially: ISG (Infrastructure Solutions Group) operating profit margin reached 15.0%, significantly higher than the 8.8% recorded in the same period last year; the company's overall non-GAAP gross margin rose to 21.1% (versus 18.7% a year prior). Typically, AI servers would dilute the overall profit margin, but Dell's profit margin instead increased against the trend in the second quarter.

Analysis of FY2027 Guidance

Following Dell's financial disclosure, Wall Street earnings prediction models indicate that the EPS forecasts for the four consecutive quarters after Q2 FY2027 have all been significantly revised upwards.

From a technical perspective, the stock price shows a strong pattern of breaking above the $500 mark. Even as the broader market was hit by hawkish macro reports, Dell shares showed a counter-trend rally. There is a clear structural divergence in market capital allocation: the supply-chain stocks linked to AI hyperscaler capital expenditures continued to trend upward, while traditional non-AI names and some mega-caps saw pressure as high capex weighed on free cash flow and share buybacks.

From a business outlook perspective, Dell's management indicated during the earnings call:

By 2028, enterprise-grade intelligent agents are expected to become the single largest workload.

By 2030, AI will account for 75% of total data center demand, with an additional 200 GW of power required.

About half of this demand aligns with Dell’s core target customer base (including Neoclouds, next-generation cloud vendors, sovereign institutions, and enterprise clients).

By 2030, the total market opportunity in this field is expected to break through $1 trillion.

As of Q2 FY2027, Dell AI backlog orders had surged by $43.7 billion, bringing the total backlog to $95 billion.

Drivers behind revenue outperformance: Expansion in non-AI businesses

According to S&P Global data, before the release of the Q2 FY2027 report, the market expected AI server revenue to be about $16 billion; the actual announced AI server revenue was $16.401 billion, exceeding estimates by $401 million.

In comparison, Dell's total quarterly revenue reached $46.97 billion, surpassing market expectations of $45.1 billion by $1.87 billion. This means that the $401 million outperformance by AI servers accounted for only about 21.4% of the overall revenue beat, indicating that Dell's growth engine is shifting toward the non-AI server business.

Data comparison shows:

Traditional server sales rose 23% quarter-on-quarter; storage revenue increased by 12% QoQ; AI server revenue: slight increase of 2% QoQ.

The growth of ISG’s non-AI segment mainly benefited from the following three factors:

Device replacement cycle: About 1.2 million units in the existing equipment asset pool are facing upgrade demand.

Hybrid cloud deployment preference: Enterprise clients continue to favor hybrid cloud architectures in their AI infrastructure buildouts.

Higher proportion of high-margin IP portfolio: Dell's proprietary IP's share in the storage business increased, providing effective support for gross margin and overall ISG profitability.

It is worth noting that management mentioned in the FY2027 Q1 earnings call that "AI server profit margins were maintained in the mid-single-digit operating margin target," but did not update this metric in Q2. However, given ISG segment operating margins have achieved significant YoY and QoQ growth, the market infers that AI server profit margins likely remain at the expected mid-single-digit level.

Summary

Given the $25 billion upward revision in FY2027 revenue guidance and AI backlog swelling to $95 billion, Dell's fundamentals and technicals (breakout over $500) both send strong bullish signals, justifying an upgraded “Buy” rating for the stock.

However, there are still short-term risks in the macro market. The upcoming CPI report is expected to show a month-on-month rise in inflation (as per the 0.4% consensus), and with geopolitical dynamics affecting long-term Treasury yields, risk assets may face overall headwinds.

Despite the broader market coming under pressure from a hawkish employment report, Dell’s stock has demonstrated strong resilience, indicating that the selling pressure on the individual name is easing.