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There have been many questions in recent months about the ongoing potential of artificial intelligence (AI). As one of the undisputed beneficiaries of the AI revolution, Dell Technologies ( DELL -6.80% ) was in the spotlight today, as the company released its quarterly financial report after the market close on Tuesday. Investors were looking for insight into whether AI adoption continued to gain traction.
That question was answered with a resounding "yes," as the computer and AI specialist blew past expectations, sending its stock skyward. Image source: The Motley Fool. What AI slowdown?
For its fiscal 2027 second quarter (ended July 31), Dell delivered record revenue, up 58% year over year to $47 billion. The financial strength continued down the income statement as fiscal discipline and widening margins drove record adjusted diluted earnings per share (EPS), which soared 203% to $7.04. For context, analysts' consensus estimates called for revenue of $44.5 billion and adjusted EPS of $4.92, so Dell surpassed expectations by a wide margin -- especially on the profit front.
The company shattered more records during the pivotal quarter. Dell's AI server business was particularly robust, as it booked a record $60.9 billion in orders, recognized a record $16.4 billion in revenue, and closed out the quarter with a record $95 billion backlog, which rose eightfold year over year. Management noted that traditional server growth was fueled by the data center modernization and build-out trend, and the opportunity remains significant.
Most of Dell's customers are running 14th-generation servers, and upgrading to 17th and 18th-generation servers, which replace five to 13 legacy servers, and come with higher margins. This suggests the current trend has room to run. Dell's Infrastructure Solutions Group (ISG) generated record revenue, climbing 89% year over year to $31.8 billion, with AI-optimized server revenue doubling to $16.4 billion, while revenue from traditional servers and networking, at $10.5 billion, surged 122% year over year.
Storage revenue was also respectable, up 26% to $4.9 billion. While the results were more muted, revenue from the Client Solutions Group (CSG) also delivered, as revenue rose 20% year over year to $15 billion. The segment reported record commercial client revenue that increased 22% to $13.2 billion, while consumer revenue rose 7% to $1.8 billion.
Premium Feature Moneyball Superscore 86 /100 Today's Change ( -6.80 %) $ -31.01 Current Price $ 425.00 The future's so bright, I gotta wear shades Dell has experienced a renaissance since the advent of generative AI in late 2022. The company has shifted from a sleepy computer maker to a dominant infrastructure and AI server powerhouse. Dell continues to experience unprecedented demand for its AI solutions, and it appears that won't be changing any time soon.
For investors wondering whether the good times will continue, management helped put those fears to rest. Dell issued an eye-opening forecast for Q3. The company's outlook calls for revenue to grow 81% to $49 billion, driving adjusted diluted EPS up 151% to $6.50.
Management also increased the company's full-year guidance, raising its revenue outlook to $192 billion, representing 69% growth, and adjusted diluted EPS to $25.50, up 148%. Moreover, the company expects the current momentum to carry well into next year. Despite Dell's blistering growth, the stock is remarkably cheap at 22 times forward earnings.
That's an attractive price for a company generating high double-digit revenue growth and triple-digit profit growth. That's why I would submit that Dell stock is a buy. Investors seem to agree, sending Dell shares up more than 7% in after-hours trading (as of 5:57 p.m.
ET).
Source: The Motley Fool
