DELL's ISG Revenue Rises: Is Solid AI Server Demand the Catalyst?

Core Insights - Dell Technologies is experiencing significant growth in its Infrastructure Solutions Group (ISG) due to strong demand for AI servers, with ISG revenues increasing by 24% year over year to $14.10 billion in Q3 fiscal 2026, marking seven consecutive quarters of double-digit growth [1][10] Group 1: AI Server Demand and Performance - In Q3 fiscal 2026, Dell booked $12.3 billion in AI server orders, bringing year-to-date orders to $30 billion, and shipped $5.6 billion worth of AI servers [2][10] - The company ended Q3 with a record backlog of $18.4 billion in AI server orders, indicating sustained demand from a diverse customer base including Neoclouds, Tier 2 cloud service providers, Sovereigns, and Enterprises [2] - Dell expects to ship approximately $9.4 billion worth of AI servers in Q4 fiscal 2026, projecting total AI server shipments of $25 billion for fiscal 2026, representing a remarkable 150% year-over-year growth [4][10] Group 2: Financial Performance and Margins - ISG's operating income reached a record $1.7 billion in Q3 fiscal 2026, up 16% year over year, with an operating income rate of 12.4% of revenue [3] - The Zacks Consensus Estimate for fiscal 2026 earnings is pegged at $9.55 per share, suggesting a year-over-year growth of 17.32% [14] Group 3: Competitive Landscape - Dell faces stiff competition in the server market from companies like Hewlett-Packard (HPE) and Super Micro Computer (SMCI) [5] - HPE's server segment sales increased by 16% year over year to $4.94 billion in Q3 fiscal 2025, driven by strong demand for AI-optimized servers [6] - Super Micro Computer has a competitive edge by being first to market with the latest AI servers, including systems built on NVIDIA's platforms [7] Group 4: Stock Performance and Valuation - Dell Technologies shares have gained 15.7% year to date, underperforming the broader Zacks Computer & Technology sector's return of 26.5% [8] - Dell's forward 12-month Price/Sales ratio is 0.77X, significantly lower than the sector's 6.69X, indicating that the shares are undervalued [12]