Dell Just Blew Out Earnings as It Joins the AI Party. Should Investors Buy the Stock After its 221% Run This Year?

Another legacy computer and enterprise technology company has officially cemented itself as a big player in the artificial intelligence supply chain and joined the party.

Dell (NYSE:DELL)reported rock-star earnings results for its first quarter of fiscal year 2027.

The company reported adjusted diluted earnings per share (EPS) of $4.86, up 214% year over year and blowing past consensus estimates of $2.96.

Revenue of close to $44 billion also far exceeded the $35.7 billion estimate.

The company also raised its full-year revenue guidance to $167 billion at the midpoint, representing 47% growth from fiscal 2026.

The massive beat-and-raise can be attributed to soaring demand for AI servers, and the company expects full-year AI server revenue to reach $60 billion.

Dell’s Chief Operating Officer, Jeff Clarke, said, “The AI opportunity shows no signs of slowing.” Morgan Stanley analyst Erik Woodring said the incredible beat caught his team off guard.

“We got this one wrong, and our model/PT are under review,” Woodring wrote in a research note today, according to CNBC. “This was — across the board — one of the most impressive quarters we’ve seen in our time covering Hardware, especially in the context of what is happening across the component universe.”

As of 2:07 p.m. ET today, Dell traded nearly 29.5% higher and is now up 221% this year. Should investors still buy the stock?

Image source: The Motley Fool.

Dell’s role in the AI stack

Many components are needed to run AI solutions.

While Nvidia’s graphics processing units (GPUs) used to train large language models (LLMs) have received most of the attention, companies making other components have seen their stocks melt up.

For instance, Micron has crushed it due to the intense memory demand required to feed GPUs with data.

Dell plays another vital role by selling AI servers that pretty much tie all of the components of the AI stack together, from the GPUs to the memory to the storage to the central processing units (CPUs).

So, as GPU clusters continue to scale, Dell benefits from increased demand for servers.

Is the stock a buy?

After the big run, Dell now trades over 32 times trailing earnings. Its five-year average is 16.

While these multiples may not sound very heroic in the AI sector, it’s important to understand that, like Micron, Dell has previously been treated as a cyclical stock because the hardware business typically comes in waves.

But the AI supercycle could change this, at least if it keeps up this pace.

On the company’s earnings call, Clarke said the company exited the quarter with an AI server backlog of over $51 billion. Demand continues to exceed supply, and Clarke also said Dell expects to exit 2026 with a strong backlog.

Given the demand, Dell stock could have more runway ahead even after the big run.

However, like other AI components of the supply chain, it will likely live and die with the AI trade, which could see a correction at some point.

Management is also succeeding with other parts of Dell’s business, projecting gross margins in its businesses excluding AI to also expand through the year, so there is something to be said for execution.

I think investors can own the stock, but they should understand that the big gains may already be in. If you do buy, I’d recommend starting small and then dollar-cost averaging in.

Bram Berkowitz has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Micron Technology and Nvidia. The Motley Fool has a disclosure policy.