Shares of Dell Technologies (DELL 1.92%) have underperformed the broader market in the past year, losing 20% of their value while the tech-laden Nasdaq-100 Composite index recorded 14% gains during the same period.
However, Dell's poor returns in the past year mean that it is trading at a very attractive valuation right now. Throw in the fact that the company is witnessing a gradual uptick in growth due to a recovery in the personal computer (PC) market and a sharp increase in the demand for its artificial intelligence (AI) servers, and it could very well turn out to be a solid buy right now.
Let's look at the reasons why Dell looks like a top AI stock to buy this month.
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Dell's latest quarterly results point toward better times ahead
Dell released its fiscal 2026 first-quarter results (for the three months ended May 2) on May 29. The company's revenue increased by 5% from the year-ago quarter, while non-GAAP earnings per share increased at a faster pace of 17%. The top-line growth isn't exactly eye-popping, but that's set to improve going forward due to the gradual recovery in the PC market.
Dell's revenue from sales of commercial PCs increased 9% year over year to $11 billion. However, the 19% decline in consumer PC revenue to $1.5 billion weighed on this segment's growth. The good part is that there are bright spots within the consumer PC market, such as the growing demand for AI-enabled PCs and the Windows 11 upgrade cycle.
These factors helped Dell's client solutions group (CSG) report much stronger growth in Q1 of fiscal 2026, compared to the 1% growth it saw in this segment in the previous fiscal year. Importantly, PC shipment volumes are expected to pick up over the next couple of quarters, according to market research firm IDC.
So, it won't be surprising to see Dell's CSG revenue growth rate improving going forward. At the same time, its AI server business is in fine form. The company received orders worth $12.1 billion for its AI-optimized servers in the previous quarter. This number was higher than Dell's AI server revenue in all of fiscal 2025.
The company is now sitting on an AI server order backlog of $14.1 billion, indicating that the revenue from its infrastructure solutions group (ISG) should also pick up momentum as the year progresses. Dell's ISG revenue increased 12% year over year in fiscal Q1 to $10.3 billion, and the tremendous backlog is one of the reasons why the company is now expecting even faster growth in the current quarter.
The midpoint of Dell's fiscal second-quarter revenue guidance points toward a year-over-year increase of 16%. Though the company has maintained its fiscal 2026 revenue growth guidance at 8%, it won't be surprising to see it do better than that, due to the improving prospects of the PC and server markets.
Sales of AI PCs are expected to increase at an annual rate of 42% through 2028, according to IDC. The AI server market, on the other hand, is expected to clock a 34% annual growth rate through the end of the decade. Dell, therefore, is sitting on a couple of lucrative growth drivers that could ensure years of outstanding growth for the company.
The stock's valuation makes buying it a no-brainer
Analysts have raised their earnings expectations for Dell over the next couple of years, though don't be surprised to see those estimates head higher as its AI-fueled businesses gain momentum.
DELL EPS Estimates for Current Fiscal Year data by YCharts.
But even if Dell achieves $11.84 per share in earnings in fiscal 2028 and trades at 27.5 times earnings at that time (in line with the tech-laden Nasdaq-100 index's forward earnings multiple), its stock price could hit $325. That points toward a massive jump of more than 192% from current levels.
The important thing to note here is that Dell is trading at just 17 times trailing earnings and 12 times forward earnings, which means that investors are getting a terrific deal on this AI stock right now. They should consider grabbing this opportunity with both hands as the gradual improvement in its financial performance could lead the market to reward it with more upside and send shares higher in the long run.
