Dell Earnings Call: Core Bottleneck Is 'DRAM and NAND', AI Backlog Nears $100 Billion, Full-Year Guidance Raised Sharply

On September 1, after the U.S. market close, Dell announced its second quarter results for fiscal year 2027, ended July 31. Revenue for the quarter reached $47 billion, up 58% year-over-year, a record high and above market expectations of $44.8 billion. Non-GAAP earnings per share were $7.04, up 203% year-over-year, far exceeding market expectations of $4.90.

Based on strong performance, Dell raised its full-year revenue guidance by $25 billion to a midpoint of $192 billion, an increase of about 70% year-over-year. Full-year diluted EPS guidance was raised to $25.50, up about 150% year-over-year. Third quarter revenue guidance midpoint is $49 billion, up about 80% year-over-year.

On the earnings call, management stated that the second half of the year is expected to be stronger than the first half, with growth momentum continuing across all business lines. Demand for AI servers is accelerating. As of the end of the second quarter, Dell's AI server backlog reached an unprecedented $95 billion.

Dell Vice Chairman and Chief Operating Officer Jeff Clarke highlighted this remarkable momentum:

Over the past 12 months, we have secured more than $130 billion in AI server orders. Our AI factory customer count now exceeds 6,500, with 3,300 added in the past three quarters.

He noted that AI demand is spreading from large cloud service providers (Neoclouds) to sovereign nations and traditional enterprise customers.

Not only AI-specific equipment, but Dell's traditional business also saw a surge. Jeff Clarke pointed out that this is an inevitable result of data center modernization, and AI agentic workloads are directly driving demand for traditional CPU servers.

Jeff Clarke said:

In just the past two quarters, the revenue we generated in traditional servers and networking is nearly equivalent to the revenue of any full fiscal year in the company's history. There are still 1.2 million 14th generation or older servers in customers' installed base that need upgrading, providing us with a huge and lasting refresh opportunity.

Facing explosive demand, Dell is grappling with an industry-wide challenge: shortages. From DRAM and NAND to some CPUs and mature process chips, the entire supply chain is under extreme strain. When asked about supply chain constraints, Jeff Clarke emphasized:

The constraints remain the same. It's DRAM, DRAM, DRAM, and then NAND, NAND, NAND.

AI Infrastructure Booming, Traditional Business 'Old Tree Sprouts New Branches'

Beyond overall data, the business structure that the market is most focused on is undergoing dramatic change. In the second quarter, Dell's Infrastructure Solutions Group (ISG) revenue surged 89% to a record $31.8 billion.

Among this, the explosive power of AI servers is remarkable. In the second quarter, Dell secured a record $60.9 billion in AI server orders, recognized revenue of $16.4 billion, and ended the quarter with an AI server backlog of $95 billion.

Dell COO Jeff Clarke revealed that over the past 12 months, the company has converted $131.7 billion into orders, and the number of AI customers has exceeded 6,500, with demand spreading from cloud service providers to sovereign nations and traditional enterprises.

Surprisingly, non-AI business also showed explosive growth. Traditional server and networking revenue was $10.5 billion, up 122% year-over-year, even faster than AI compute business.

Jeff Clarke explained that growth comes from three main drivers:

First, data center modernization, driving demand for high-core-count, high-capacity DRAM servers;

Second, heightened security and resilience requirements, including new compliance needs such as post-quantum cryptography, forcing accelerated replacement of aging infrastructure;

Third, new demand for CPU compute from enterprise AI and agentic workloads.

The company disclosed that there are still 1.2 million 14th generation or earlier servers in the installed base awaiting upgrade, and the 18th generation servers shipping next month have a consolidation ratio of 12 to 14 old servers per new one, indicating the refresh cycle is far from over.

Additionally, storage revenue was $4.9 billion, up 26% year-over-year, with Dell-IP storage demand outperforming the market for six consecutive quarters. PowerStore achieved double-digit demand growth for the ninth consecutive quarter, and unstructured storage products like PowerScale maintained double-digit growth for three consecutive quarters.

Jeff Clarke stated that agentic workloads, KV caching, and other new AI technologies are creating new growth paths for the storage business, with clear long-term incremental opportunities driven by data.

Supply Chain Stretched to the Limit: 'DRAM, DRAM, DRAM'

Facing overwhelming orders, Dell executives did not hide the extreme tightness in the current supply chain during the earnings call. Market concerns about capacity were confirmed by Jeff Clarke's very down-to-earth remarks.

Chief Operating Officer Jeff Clarke pointed out on the earnings call that AI infrastructure demand is not simple hardware assembly; some projects require up to 50 custom designs, covering complex requirements such as workload performance, power, cooling, and data center environments. Clarke said bluntly:

The constraints remain the same. It's DRAM, DRAM, DRAM, and then NAND, NAND, NAND. We face sporadic shortages of CPUs, and there are also shortages of disk drives. If you go deep into the supply chain, almost every product that goes through advanced process nodes is constrained.

Not only advanced processes, but traditional components are also stretched. Clarke emphasized:

Mature processes for MOSFETs, power ICs, microcontrollers, and drivers are also constrained. ABF substrates and T-glass are also in shortage. Optical components are also in short supply.

For the hottest AI sector, he used a vivid phrase:

To manufacture CDUs and power racks, the AI supply chain is 'working red line all out'.

Facing this extreme strain, Clarke joked:

Welcome to the life of Dell's supply chain team. This is what we do every day—chasing parts. But we enjoy it.

Aiming for 2030: Trillion-Dollar Vision and Market Divergence

Regarding the sustainability of future growth, Dell provided an extremely optimistic long-term outlook.

As inference demand surpasses training demand, enterprise agentic workloads are expected to become the single largest workload by 2028.

Jeff Clarke made a striking prediction on the call:

We expect that by 2030, AI will account for 75% of all data center demand, and will add 200 gigawatts of power demand over the same period.

He believes that within this cycle, the market opportunity for Dell will exceed one trillion dollars.

However, from the perspective of market investors, this grand vision has sparked intense debate. Assuming there are only about four years from now to 2030, Dell's depiction of '75% AI penetration in data centers' seems 'too good to be true' for AI bulls.

This aggressive expectation also contrasts sharply with Tesla CEO Elon Musk's recent frequent warnings about potential overbuilding of AI compute and shortages of power and transformers, highlighting the current divergence in the industry's understanding of the long-term pace of AI development.