RBC Capital Markets has initiated coverage of Dell Technologies with an outperform rating, signaling confidence that the company's AI server business has more room to run. In a research note, RBC highlighted Dell's $95 billion backlog of AI server orders, arguing that demand remains robust and visible well into fiscal 2027.
The rating is a notable endorsement for Dell, which has become one of the biggest beneficiaries of the AI infrastructure boom. The company's servers, packed with graphics processing units (GPUs) from Nvidia and others, are essential for training and running large AI models. RBC's view suggests that despite concerns about a slowdown in AI spending, Dell's order book remains strong.
What's driving the backlog?
According to RBC, Dell ended its fiscal second quarter with $95 billion in AI server backlog. That figure represents orders that customers have placed but that Dell has not yet fulfilled. The firm notes that Dell has already converted about $132 billion of such demand into actual orders over the past 12 months, indicating a high level of commitment from customers.
The key insight from RBC is that the limiting factor for Dell is no longer customer appetite. Instead, it's the supply of memory components. Memory chips, particularly high-bandwidth memory (HBM) used in AI accelerators, are in tight supply. This constraint can slow down how quickly Dell can build and ship servers, but it also means that demand is likely to remain pent-up for longer, extending the visibility of the backlog.
This dynamic is not unique to Dell. Other tech companies have reported similar supply chain bottlenecks. For instance, Oracle recently lifted its profit outlook as its AI cloud backlog hit $664 billion, also citing supply constraints as a factor. The broader AI infrastructure buildout is straining the supply of key components, from memory to power.
Why RBC is bullish
RBC's outperform rating is a clear signal that the firm believes Dell's stock will perform better than the broader market or its peers over the next 12 months. The bank's analysts see the AI server backlog as a durable source of revenue, one that could keep growth elevated for years.
Dell has already been a standout performer in the AI trade. The company has repeatedly raised its AI server revenue forecast, most recently lifting its forecast to $74 billion on strong demand. That kind of momentum, combined with a massive backlog, makes Dell an attractive pick for investors looking to gain exposure to AI infrastructure.
RBC's note also comes at a time when some investors are questioning whether AI spending is sustainable. The fear is that companies will eventually pull back on their data-center investments, leading to a sharp slowdown. RBC's analysis suggests that, at least for Dell, that pullback is not imminent. The backlog provides a cushion, and the memory supply constraint acts as a natural brake on how quickly orders can be fulfilled, stretching the revenue stream further into the future.
What it means for investors
For everyday investors, the RBC initiation is a positive signal for Dell's stock. An outperform rating from a major bank can influence other institutional investors and potentially drive buying interest. However, it's important to remember that analyst ratings are just one opinion, and they can be wrong.
The key takeaway is that Dell's AI server business appears to have strong momentum. The $95 billion backlog is a concrete measure of future revenue, and the memory supply constraint suggests that this revenue will be recognized over a longer period, providing a steady stream of earnings. This could make Dell a more stable investment than some other AI plays that are more dependent on the whims of a few large customers.
That said, investors should also be aware of the risks. The AI server market is highly competitive, with rivals like Super Micro Computer and Hewlett Packard Enterprise also vying for market share. Additionally, if the AI spending boom were to fade faster than expected, Dell's backlog could shrink as customers cancel or delay orders. The memory supply constraint, while currently a tailwind, could also become a headwind if it persists for too long, limiting Dell's ability to grow revenue.
RBC's note is a reminder that the AI infrastructure buildout is still in its early innings. Companies like Dell are at the center of this transformation, and their order books reflect the massive investments being made by cloud providers, enterprises, and governments. For investors, the question is not whether AI is a real trend, but how long it will last and who will be the winners. RBC is betting that Dell will be one of them.
As always, it's wise to do your own research and consider how any stock fits into your overall portfolio. Analyst ratings can be useful, but they are not a substitute for your own judgment.
