Dell (DELL) Earnings Preview – Bear Market Bounce?!

Popular computer hardware company Dell Technologies (DELL) reports earnings after the close today and expectations have been lowered with the stock down 24% from its recent highs at the start of the month. 

Dell Technologies is a global company that designs, manufactures, and markets personal computers and other computer products. Dell operates in two primary segments: the Infrastructure Solutions Group (ISG) and the Client Solutions Group (CSG). The ISG segment offers traditional and modern storage solutions, while the CSG segment manufactures laptops, notebooks, and desktop computers.

Dell is expected to show continued growth driven by demand for its AI-optimized servers, although this is tempered by headwinds from weaker consumer demand, rising memory costs, and lower profit margins on AI servers. The Zacks Consensus Estimate for fiscal third-quarter revenues is pegged at $27.27 billion, suggesting 11.93% growth from the figure reported in the year-ago quarter. The consensus mark for quarterly earnings is pegged at $2.48 per share, unchanged over the past 30 days and suggesting year-over-year growth of 15.35%.

The company has seen sustained demand for its AI-optimized server solutions, with a significant backlog reported in the previous quarter. Strong performance in this area could help offset other pressures. Revenue in Dell's Infrastructure Solutions Group (ISG) is expected to show strong growth, fueled by AI infrastructure demand. Last quarter, ISG segment’s record revenue of $16.8 billion, reflecting(reflected?) a rise of 44% from the prior year’s period. This, in turn, was based on a robust 69% annual increase in revenue from the company’s servers and networking solutions, driven by AI solutions shipments crossing the $10 billion mark in the first half of the fiscal year, surpassing all shipments in the previous fiscal year.

The stock has pulled back sharply this month on concerns of an AI bubble and spending on AI infrastructure build-outs which have hit Dell shares over 21% in November alone. Despite strong top-line growth, margin resilience is the wildcard with rising DRAM and NAND costs. On November 16th, Morgan Stanley downgraded Dell Technologies to Underweight from Overweight with a price target of $110, down from $144. The firm believes the memory "supercycle" brings downside risk to hardware manufacturer earnings heading into 2026. The cycle is driving inflated input costs amid "tepid" non-artificial intelligence hardware demand trends. 

The stock is still up 10% this year but is in bear-market territory as it has pulled back over 20% from its recent highs. Dell shares bounced off its 200-day simple moving average last week, which may act as a near-term support area as stocks have rallied the last two sessions. The option market is pricing in a one-day +/- 7% move in the shares post earnings or $9.00. Dell enters 3Q earnings with strong AI-driven momentum but faces a delicate balancing act between growth and profitability. The bar is low going into the report but maybe the concerns are warranted due to margins and AI spending concerns.

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