BETTING AGAINST THE ROOM

(DELL), (IBM), (HPQ), (SMCI), (NVDA)

I’ll never forget the first time I met Michael Dell. 

It was late 1987, right around the time his company was preparing to go public, and I was covering the emerging PC industry for my newsletter when this skinny kid from Texas showed up at a conference in San Francisco explaining how he was going to bypass retail and sell computers directly to customers. 

Everyone thought he was absolutely insane. 

The Compaq executives were smirking in the back row. IBM (IBM) didn’t even acknowledge his existence. The conventional wisdom said you needed physical retail presence to move boxes. Dell said the conventional wisdom was wrong, and he’d prove it by cutting out the middleman entirely. 

Thirty-seven years later, here we are watching Dell Technologies (DELL) transform itself yet again, this time from a PC dinosaur into an AI infrastructure powerhouse that most investors are still overlooking.

The stock popped over 9% after their October 7 Analyst Day, and predictably, everyone’s asking whether they missed the boat. They haven’t, but understanding why requires looking past the surface-level AI hype that’s infected every corner of this market. 

Dell’s real story isn’t about AI servers or GPU clusters, though those numbers are impressive. It’s about something far more fundamental that the Street consistently undervalues: operational execution in a capital-intensive business during a genuine infrastructure buildout cycle.

Let’s talk about what happened in their most recent quarter, when they reported $29.8 billion dollars in revenue, up 19% year-over-year. Operating income hit $1.8 billion, growing 27%. 

Those are solid numbers, but their Infrastructure Solutions Group is the highlight when it surpassed the Client Solutions Group in revenue for the first time in company history. The AI and data center business is now bigger than PCs. 

The consensus analyst view expects fiscal 2026 revenue around $107 billion, up 12%, with earnings per share growing 25% to roughly $8. That puts the forward price-to-earnings ratio around 16 times, about 40% below the sector median. 

Now, before you start thinking this is some screaming bargain, remember that Dell operates in hardware, not software. Their gross margins run just over 21% versus the tech sector average of 50%. 

But comparing Dell to the broader information technology sector is like comparing a construction company to a software-as-a-service business. They’re different animals entirely.

What’s actually interesting is Dell’s competitive position relative to their real peers. 

Hewlett Packard Enterprise (HPQ) runs gross margins around 30%. Super Micro Computer (SMCI), which everyone was salivating over last year before their accounting issues surfaced, operates at roughly 11% gross margins. 

Dell sits comfortably in between, and what most people miss is that this company’s margin profile is improving as the mix shifts toward higher-value infrastructure solutions and away from commodity PCs. That’s the whole ballgame.

The deployment speed advantage Dell has built is legitimate and defensible. When they tell you they can ship a GB200 or GB300 rack system and have it operational in 24 to 36 hours versus competitors taking weeks or months, that’s not marketing fluff. 

I’ve spoken with data center operators who confirm this timeline. In a market where hyperscalers and enterprise customers are racing to deploy AI infrastructure before their competitors, speed is pricing power. Dell can charge premium rates because downtime costs their customers more than the premium.

Meanwhile, their storage business is the sleeper asset nobody’s properly valuing. Dell holds the number one position in both compute and storage, with market share exceeding their next two competitors combined. 

PowerStore, PowerFlex, and PowerScale aren’t sexy products, but they’re essential infrastructure for AI workloads that depend on random data access. Eighty percent of AI applications require this capability, and Dell’s installed base gives them a structural advantage in cross-selling AI infrastructure to existing storage customers. That’s a distribution moat hiding in plain sight.

The bear case is straightforward. Dell trades near all-time highs, up about 40% from its five-year valuation average. Estimates are split evenly between upgrades and downgrades heading into third-quarter results. The company has a history of missing earnings expectations. 

Short-term momentum buyers who chased the post-Analyst Day pop are probably going to get shaken out. If you’re building a position here, you need patience and you need to scale in on weakness.

But the long-term thesis is compelling precisely because it’s boring. This isn’t about betting on some revolutionary technology or hoping Dell becomes the next Nvidia (NVDA). 

It’s about recognizing that enterprises are moving generative AI workloads on-premise, Dell has the infrastructure and execution capability to capture that spending, and the market is still pricing them like a mature PC manufacturer rather than an infrastructure provider in the early innings of a multi-year buildout cycle. 

They’re returning 97% of free cash flow to shareholders through buybacks and dividends. Share count has dropped from 731 million to 672 million in 18 months.

The move is simple: buy the dips, build your position gradually, and recognize this is a three-to-five-year story, not a three-month trade. Dell won’t deliver explosive software-company returns, but it’ll compound steadily while everyone else chases the next shiny AI object. 

The crowd is usually wrong at inflection points. Back in that San Francisco conference room in 1987, conventional wisdom said Michael Dell’s direct-sales model would never work. Conventional wisdom was spectacularly wrong. 

Today, conventional wisdom says Dell is just a PC company watching the AI revolution from the sidelines. I’m betting conventional wisdom is wrong again.