Dell Technologies Inc. (DELL) shares jumped about 6% in premarket trading Wednesday after delivering the kind of earnings beat that makes analysts scramble to update their models. The company crushed third-quarter expectations and hiked its full-year outlook, riding a wave of demand for AI servers that's turning its infrastructure business into a margin-expanding machine.
Goldman Sachs wasted no time revising its numbers, bumping the 12-month price target from $175 to $185—a move that suggests roughly 47% upside from where the stock closed Tuesday.
AI Server Demand Explodes
The star of Dell's fiscal 2026 third quarter was undeniably AI servers. Orders hit $12.3 billion, more than double the $5.6 billion recorded last quarter. That's not incremental growth—that's a structural shift in how second-tier cloud providers and enterprise customers are thinking about their infrastructure needs.
Earnings per share came in at $2.59, comfortably ahead of the $2.47 consensus. Revenue of $27 billion landed roughly where analysts expected, but the composition told a more interesting story.
The real surprise was margin improvement. Dell's Infrastructure Solutions Group saw EBIT margins expand to 12.4% from 8.8%. Goldman Sachs analyst Michael Ng pointed to several factors: a better mix of higher-margin customers, reduced one-time costs from earlier rack deployments, and a shift toward more complex GB300 rack designs that command premium pricing.
Dell also raised its full-year AI server shipment forecast to $25 billion from $20 billion. The Infrastructure Solutions Group revenue outlook jumped to mid-to-high 30% year-over-year growth, up from mid-to-high 20%. Those aren't minor adjustments—they reflect genuine momentum.
Consumer PCs Remain Weak, Commercial Steady
Not everything sparkled. The Client Solutions Group missed expectations as consumer revenue dropped 7% year-over-year, offsetting 5% growth in commercial revenue. "CSG revenue and margins missed as consumer revenue weakness weighed on accelerating commercial revenue growth," Ng noted.
CSG pulled in $12.5 billion for the quarter, slightly below estimates, with margins of 6% missing Goldman's 7% projection. The culprit? Competitive pricing pressure in consumer and education markets.
Still, Dell stuck with its full-year CSG margin framework of 5%-7% and maintained its expectation for a flat PC market in 2026, banking on corporate device refreshes and Windows 11 upgrades to support demand.
Traditional Servers and Storage Deliver Quiet Wins
Beyond the AI headline, Dell showed strength in less flashy segments. Traditional server demand grew double-digits year-over-year, fueled by ongoing data center modernization efforts, according to Ng.
Storage revenue of $4.0 billion topped expectations, with profitability improving sequentially thanks to favorable product mix. Ng highlighted "double-digit demand growth across PowerStore, PowerMax, ObjectScale, and PowerFlex offerings"—Dell's proprietary storage solutions that carry better margins.
Guidance Gets a Meaningful Upgrade
Looking ahead, Dell now expects fourth-quarter revenue between $31 billion and $32 billion, well above consensus. For the full fiscal year 2026, the company raised revenue guidance to $111.2 billion to $112.2 billion and lifted its non-GAAP EPS range to $9.82–$10.02 from $9.30–$9.80.
Goldman expects Dell's AI momentum to persist through 2026, supported by continued traditional server refreshes and an expanding mix of Dell-IP storage products—all contributing to sustained margin expansion. When infrastructure margins jump nearly 400 basis points in a quarter, people start paying attention.
