Dell Booked More AI Server Orders in 3 Months Than It Recorded in Total Revenue

Shares of Dell Technologies (NYSE:DELL) surged as much as 12% on Friday, touching a fresh 52-week high. The hardware giant's stock has more than quintupled from its 52-week low as of this writing.

Much of the latest leg has come since the company posted fiscal 2027 second-quarter results (the quarter ended July 31, 2026) on Sept. 1.

One comparison in that report stands out to me above everything else: Customers ordered $60.9 billion of artificial intelligence (AI) servers during the fiscal second quarter. Dell's total revenue (across servers, storage, and PCs) came in at $47 billion.

Those are two different kinds of numbers, to be sure. An order is a booking, a commitment that becomes revenue only when Dell builds and delivers the machines. Revenue is what the company recognized in the period.

Demand, in other words, is no longer the debate. What the next two years of earnings look like depends on how quickly Dell converts those commitments into delivered servers, and on what the conversion costs.

Image source: The Motley Fool.

Demand is outrunning the income statement

The fiscal second quarter itself was exceptional. Not only did revenue climb 58% year over year, reaching a record $47 billion, but non-GAAP (adjusted) earnings per share also tripled to $7.04. Dell recognized a record $16.4 billion of AI server revenue, up 100% year over year. And with $60.9 billion of new orders coming in, it exited the quarter with a record $95 billion backlog.

Dell booked $24.4 billion of AI orders and recognized $16.1 billion of AI server revenue in the fiscal first quarter. In other words, orders more than doubled sequentially while recognized revenue barely budged.

Management now calls for $192 billion of full-year revenue, a $25 billion increase from its previous outlook and 69% above last year. AI server revenue guidance went from $60 billion to $74 billion, and adjusted earnings per share guidance now sits at $25.50, up 148% year over year.

Can Dell build servers fast enough?

Dell has recognized about $16 billion of AI server revenue in each of the last two quarters. I'd argue the limit right now is how fast the company can build and deliver servers, not how many customers want them.

To hit $74 billion for the full year, the second half needs to accelerate to about $41.5 billion of AI server revenue -- nearly $21 billion a quarter. And even at the faster pace, the backlog represents more than a year of AI server revenue before any new orders.

The margin worry, at least, eased this quarter. Dell's infrastructure segment revenue soared 89% year over year to $31.8 billion, and the segment's operating margin came in at 15%, expanding from the fiscal first quarter's 10.5% and from 8.8% a year earlier, helped by what Dell calls disciplined pricing. That expansion came despite what the company describes as substantial inflation in memory component costs.

The cash hasn't caught up yet

However, all of that growth is consuming cash first. Operating cash flow slipped to $2.2 billion, from $2.5 billion a year earlier, even as net income more than tripled to $4.1 billion. Inventories have doubled since the end of January to $21.3 billion as Dell stockpiles components and builds against its backlog. And financing receivables (money Dell's in-house financing arm lends customers to pay for their purchases) climbed to $20.4 billion from $14.3 billion over the same stretch. Dell's adjusted free cash flow, which adds that lending back, did come in at $8.1 billion, up 224% year over year.

Dell also priced a $5 billion senior notes offering this week, partly to repay notes coming due this year. Sure, funding a build-out of this size takes working capital, and Dell can borrow at reasonable rates. But reported earnings are running well ahead of collected cash for now -- and the next two years of profits depend on those orders turning into delivered, paid-for systems on schedule.

Where does that leave the stock? Shares trade around $562 as of this writing -- about 33 times the company's earnings over the past 12 months, but about 22 times the adjusted earnings per share now guided for this fiscal year. For a company guiding for nearly 70% revenue growth, that price-to-earnings multiple is arguably fair, as long as the conversion stays on schedule.

Ultimately, I wouldn't chase the stock after Friday's surge. For investors who already own shares, I think the backlog is a good reason to keep holding.

And if operating cash flow starts catching up with those record profits over the next couple of quarters, I'd consider buying, even at a higher price.

Daniel Sparks and his clients do not have positions in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.