Dell’s AI server surge comes with thinner margins

Dell Technologies is riding the AI data center buildout, with demand for Nvidia-based servers helping lift revenue and Michael Dell’s wealth. Fortune reported that the same shift is squeezing the company’s gross margins, raising a key question for investors: how much profit Dell can keep from the AI hardware boom.

The company supplies servers, racks, cooling equipment and support for customers including CoreWeave and xAI, according to Fortune. Dell also works with Nvidia, Google and OpenAI on systems used to run advanced software, Fortune reported.

Dell exceeded revenue expectations last month, CNBC reported, while Bloomberg’s Billionaires Index put Michael Dell’s net worth at $217 billion, making him the world’s fifth-richest person, according to Fortune. The stock surge has made Dell one of the more visible hardware beneficiaries of the AI spending wave.

AI growth is changing the margin profile

Fortune, citing Bloomberg data, reported that Dell’s gross margin has fallen 26% since Feb. 27, 2025, when the company first reported revenue from AI-optimized servers. Fortune also reported that the margin is down 27% from its pre-AI peak.

The revenue mix has shifted quickly. Fortune reported that AI server revenue is now 10 times Dell’s revenue from laptops and computers, the business line long associated with the company.

On Dell’s most recent earnings call, the company said AI servers were a factor in an 18.1% gross margin as AI accounted for 37% of total revenue, according to Fortune’s account of the call. Fortune said that points to lower gross margins for AI-optimized servers than for Dell’s more established products.

Dell had warned investors in February 2025 that AI servers would reduce its margin rate, Fortune reported. A Dell spokesperson told Fortune that the AI business has expanded on top of a strong core business and that Dell aims to keep gross margin rates stable within each business line.

Analysts debate the tradeoff

Aswath Damodaran, a finance professor at New York University’s Stern School of Business, told Fortune that the margin move reflects a business model in transition. “Lower gross margins indicate worse unit economics, and to the extent that this is not temporary, it has to be built into Dell’s continuing profitability story,” Damodaran said.

Wall Street remains broadly positive on the stock. Fortune cited 24/7 Wall St. data showing 18 analysts have buy ratings on Dell.

James Fish, a senior research analyst at Piper Sandler who covers digital infrastructure, told Fortune that a lower gross margin rate does not damage profitability if growth keeps adding gross profit dollars. Fish said the issue becomes more serious if the AI server expansion stops contributing to the bottom line, while adding that margin compression is one of the topics investors are discussing.

Fish also told Fortune that Dell may face pressure on gross margin percentages over the next few years because of the shift in product mix. Fortune noted that Nvidia may capture more of the profit in the AI infrastructure chain, even as companies such as Dell sell the systems built around Nvidia technology.

Dell is not alone among hardware companies facing this tradeoff, according to Fortune. The Wall Street Journal has reported that Hewlett Packard Enterprise’s AI server demand has lifted revenue while weighing on gross margins, and that Cisco’s product margins have been squeezed by sales mix and higher memory costs.

Fortune also pointed to IBM as a contrast, noting that the company exited the PC business in the early 2000s and later moved away from much of its hardware business to focus more on higher-margin software, as Reuters reported.

This story draws on original reporting from Fortune.