Dell Rises More Than 5% Overnight; What Is Driving the Stock Price Up?

TradingKey - During the Asian trading session on May 28, in U.S. overnight trading, Dell Technologies ( DELL.US) shares rose more than 5% at one point, continuing a strong year-to-date performance that has seen cumulative gains reach 140%. Previous news that Dell secured a $9.7 billion U.S. Pentagon defense contract was the direct catalyst for the stock's rally.

[Dell's stock price has risen nearly 140% this year, Source: TradingView]

This rally is primarily driven by three factors: the awarding of the major Department of Defense contract, intensifying AI demand expectations ahead of earnings season, and a series of target price upgrades from institutions.

$9.7 Billion Defense Contract Finalized

On May 28, the U.S. Department of Defense announced the award of a five-year defense software contract valued at approximately $9.7 billion to Dell. Under the agreement, Dell will provide Microsoft enterprise software, cloud subscriptions, and licensing services to the U.S. military.

Dell has long been a major purchaser of Microsoft Windows PC licenses, maintaining a deep-seated partnership with the tech giant. This major government software contract is viewed as a significant signal of the Dell-Microsoft enterprise partnership extending into the defense sector.

The contract is set to bolster Dell's enterprise services revenue and carve out a new growth channel within the government and defense sectors, potentially optimizing the company's overall revenue mix.

AI demand continues to surge.

After the U.S. market close on May 28, Eastern Time, Dell announced it will release its fiscal first-quarter 2027 earnings report after hours. As of May 27, market consensus expects Dell to achieve growth in both revenue and profit, driven by robust demand for AI infrastructure.

Historical data indicates that the AI server business has become Dell's core growth engine.

In the fourth quarter of fiscal 2026, Dell recorded quarterly revenue of $33.4 billion (a 39% year-over-year increase) and non-GAAP earnings per share of $3.89, with both figures exceeding market expectations.

Specifically, Infrastructure Solutions Group (ISG) revenue reached $19.6 billion, up 73% year-over-year; AI-optimized server revenue reached $9 billion, representing a 342% year-over-year increase, serving as the core variable for Dell’s growth inflection point.

During the fourth quarter, Dell recorded record AI orders of $34.1 billion and shipped $9.5 billion in AI servers. As of the start of fiscal 2027, the AI-related backlog reached $43 billion, marking a new record high.

This forward-looking indicator suggests that even with the significant increase in current AI server shipments, actual demand continues to outpace supply capacity, highlighting the notable visibility and sustainability of AI orders.

Management expects fiscal 2027 AI server revenue to potentially double to approximately $50 billion, a 103% year-over-year increase. Meanwhile, full-year revenue for fiscal 2027 is projected to fall between $138 billion and $142 billion, representing a 23% year-over-year increase at the midpoint. These optimistic performance expectations are continuing to bolster market confidence in Dell's valuation ahead of the earnings release.

Most institutions raise target prices.

Analysts also remain bullish on Dell. Following the news, Mizuho Securities analyst Vijay Rakesh maintained a Buy rating on Dell Technologies and raised the price target from $300 to $350.

Furthermore, the signal of several leading institutions raising price targets ahead of earnings indicates that the market is forming a more unified consensus regarding the sustainability of growth in AI server demand.

Dell’s current forward P/E ratio is approximately 23.36x, and its valuation remains within a relatively reasonable range compared to analysts' 32% growth expectation for fiscal 2027 earnings per share.

In summary, the drivers behind Dell's overnight rally are clear, including the immediate finalization of defense contracts, earnings certainty supported by the AI server backlog, and institutional repricing ahead of earnings. Consequently, market confidence in Dell's transformation into a core beneficiary of AI infrastructure has been further reinforced.